##### 



Exhibit
13




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ENRICHING FOOD AND LIVES
 PotashCorps high-quality potash, nitrogen and
phosphate restore and strengthen the earths
soils. As the worlds largest fertilizer
enterprise by capacity, we help farmers produce
the nutritious crops that enrich food  and
lives.
 NUTRIENTS THAT ENRICH
 PotashCorp converts the potash, nitrogen and phosphate derived directly or indirectly
from nature to a form that plants and animals can easily use.
 POTASH
    
    NITROGEN
    
    PHOSPHATEthe quality nutrient
    
    the cell builder
    
    the energizeris mined from deposits left behind when
prehistoric seas evaporated. Potassium
strengthens plant root systems, improves
color, texture and durability, increases
yields and adds to handling and storage
qualities. As a feed supplement, it aids
animal growth and milk production. In
industry, it is used in such products as
computer and TV screens, soaps,
de-icers and water softeners.
    
    is mined from the air (which is
78 percent nitrogen) and converted
into forms that can be directly used by
plants and animals. An essential part
of proteins and amino acids, nitrogen
speeds growth, is critical to plant
yield and quality, and is needed for
maturation. Industry uses it for plastics,
resins and adhesives.
    
    is mined from deposits containing
ancient sea fossils. It is processed into
intermediate phosphoric acid that can be
sold or further processed into fertilizer,
feed and industrial products. Critical to
key plant energy reactions, phosphorus
speeds maturity and cell reproduction.
As a feed supplement, it is essential for
growth and cell repair. Industrial
applications include soft drinks, food
products and metal treatment.




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1
 POTASHCORP | 2006 | FINANCIAL REVIEW
 1
    
    

2 Core Businesses and Markets
    
    
    
    2
    
    
    The Global Development StoryThe
global drivers of our success, our markets and the heart of what makes us PotashCorp.
    
    
    
    4
    
    
    Overview of Our Global Enterprise6
    
    
    The World Leader in Potash8
    
    
    Trinidad Production Gives Nitrogen Advantage10
    
    
    The Specialty Phosphate Producer2
    
    
    12 Objectives and Strategies
    
    
    
    12
    
    
    Objectives and StrategiesWhat
we are trying to achieve and how we plan to do it.
    
    
    
    13
    
    
    Our Potash Strategy14
    
    
    Our Nitrogen Strategy15
    
    
    Our Phosphate Strategy3
    
    

16 Capability to Deliver
    
    
    
    16
    
    
    Potash: We Supply the WorldHow
we accomplish what weve promised, the drivers
of our business and the risks we must manage.
    
    
    
    17
    
    
    Nitrogen: Increasing Our Trinidad Advantage18
    
    
    Phosphate: Building on Our Product Diversity19
    
    
    Key Performance Drivers20
    
    
    Rewarding Results21
    
    
    Managing Risk4
    
    

23 Performance and Prospects
    
    
    
    23
    
    
    Factors That
Shaped 2006 Business ConditionsWhat we achieved in 2006 and our outlook for 2007 and beyond, plus key sensitivities, cash
flow, liquidity and capital resources, and critical accounting
estimates.
    
    
    
    25
    
    
    2006 Financial Overview26
    
    
    Business Segment Review37
    
    
    2007 Outlook39
    
    
    Liquidity and Capital Resources/Management44
    
    
    Accounting Estimates and Changes5
    
    

50 Financial Information
    
    
    
    50
    
    
    Financial Performance IndicatorsKey information and data about PotashCorp in 2006, including
financial indicators and consolidated financial statements.
    
    
    
    54
    
    
    Independent Registered Chartered Accountants Reports56
    
    
    Consolidated Financial Statements89
    
    
    Appendix
  MANAGEMENTS
DISCUSSION & ANALYSIS  of Financial Condition and Results of Operations (in US Dollars)
 The following discussion and analysis is the responsibility of management and is as of February
20, 2007. The Board of Directors carries out its responsibility for review of this disclosure
principally through its audit committee, comprised exclusively of independent directors. The audit
committee reviews this disclosure and recommends its approval by the Board of Directors. Additional
information relating to us (which is not incorporated by reference herein) can be found on SEDAR at
www.sedar.com and on EDGAR at www.sec.gov.
 2006 AT A GLANCE: THE POTASH ADVANTAGE
 Our Potash First strategy is based on factors that give the nutrienta unique position in the fertilizer universe.
 POTASH 
K
    
    NITROGEN  N
    
    PHOSPHATE  PBase Product
    
    Potassium chloride (KCl)
    
    Ammonia (NH3)
    
    Phosphoric acid (P2O5)Availability of Raw Materials 1
    
    Very limited
    
    Abundant (natural gas)
    
    LimitedCost of New Capacity 2
    
    ~ $1.6 billion / 2 MMT KCl
    
    ~ $700 million / 1 MMT NH3
    
    ~ $1.3 billion / 1 MMT P2O5Greenfield 3Development Time 4
    
    5-7 years
    
    2-3 years
    
    3-4 yearsProducing Countries 5
    
    12
    
    ~ 60
    
    ~ 40 (based on phosphoric acid)State- or Subsidy-Controlled Capacity 6
    
    19%
    
    57%
    
    47%Industry Operating Rate 7
    
    82%
    
    85%
    
    78%PotashCorp Capacity 8
    
    12.9 MMT potassium chloride
    
    3.9 MMT ammonia
    
    2.4 MMT phosphoric acidPotashCorp % of World Capacity
    
    22
    
    2
    
    6PotashCorp World Position
    
    # 1
    
    # 4
    
    # 3by Capacity 9
 1-9, See Appendix  Footnotes, Page 89
MMT = million metric tonnes




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2 POTASHCORP 2006 FINANCIAL REVIEW / MD&A » CORE BUSINESSES & MARKETS
 
 SECTION 1
 CORE BUSINESSES AND MARKETS
 
 DEMAND FOR FERTILIZER RISES WITH ECONOMIC GROWTH AND CHANGING PRIORITIES
    
  Our Story Starts with Economic Growth
  Demand for Food Rises as Economies Grow
  Biofuel Production Depends on Grain
  Grain Consumption Rises, Stocks Shrink
 China and India Led World Growth
 
  World Biofuel Production Jumps in 2006




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POTASHCORP 2006 FINANCIAL REVIEW / MD&A » CORE BUSINESSES & MARKETS 3
  Rising Demand Pushes Up Crop Prices
  Greater Need to Balance Soil Nutrient Application
  Farmers Recognize Fertilizers Economic Impact
  The Solution Is Fertilizer  Especially Potash
 Global Grain Stocks Falling in Response
 
  Significant Fertilizer Growth Potential
 
 2 5
    
 This exciting development story explains why demand is growing for
PotashCorps products, especially potash, the nutrient that has been last in the
application chain. The following sections of this report will explain how we
have prepared to meet that demand, today and in the future. We will describe our
strategy and the resources we are putting behind that strategy, and discuss our
2006 financial performance and future prospects.




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4 POTASHCORP 2006 FINANCIAL REVIEW / MD&A » BUSINESS OVERVIEW
 OVERVIEW OF OUR GLOBAL ENTERPRISE
  
 
 
  
  PotashCorp Is the Worlds Largest Fertilizer Producer
 
  OUR BUSINESS BEGINS WITH FERTILIZER
 POTASH IS THE CORE OF OUR FERTILIZER BUSINESS
    Biofuel Crops Are Large Users of Potash
 
  VARIED SALES TO VARIED CUSTOMERS




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POTASHCORP 2006 FINANCIAL REVIEW / MD&A » BUSINESS OVERVIEW 5
  PotashCorp Can Meet Rising Potash Demand
 
    PRICING
 THE LOGISTICS OF HANDLING GROWTH
    FEED AND INDUSTRIAL BUSINESSES PROVIDE STABILITY
    DEMAND DRIVERS
   Rising world population and economic growth
  FERTILIZER
 
    
    Desire for protein-rich diets
    
    Acres planted and application rates
    
    Crop selection and commodity prices
    
    World grain stocks
    
    Increasing biofuel production
    
    Weather
    
    Currency strength
    
    Government policy
 FEED
 
    
    Demand for protein-rich diets from various animal sources
    
    Herd and flock size
    
    Government policy
 INDUSTRIAL
 
    
    Desire for products
that contribute to
modern living
    
    Government policy




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6 POTASHCORP 2006 FINANCIAL REVIEW / MD&A » POTASH
 
 THE WORLD LEADER IN POTASH
 
  PotashCorp Is the Largest Potash Company
 
     POTASH ADVANTAGES
 Offshore Markets Offer
Long-Term Growth in Potash
Demand




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POTASHCORP 2006 FINANCIAL REVIEW / MD&A » POTASH 7
  Potash Sales Driven by Need for Food, Feed, Fiber, Fuel
 
    2006 Cost of Producing a Tonne of Potash
 POTASH STRENGTHS
 
 
    
    Majority of world excess capacity, which
can be brought on stream quickly at a
substantial discount to comparable
greenfield capacity
    
    Low-cost, flexible production, small percentage of fixed costs
    
    Significant reserve life from existing mine shafts
    
    Strong free cash flow to reinvest in internal
growth or offshore opportunities
    
    Solid contributions from investments in offshore producers
    
    Few world producers, little government ownership
    
    Substantial barriers to entry, with high cost and long lead time
    
    No substitutable products for potash POTASH WEAKNESSES
 
 
    
    High Saskatchewan resource taxes and
federal and provincial income taxes, relative
to global competitors
    
    High rail and ocean freight delivery
costs of Saskatchewan potash, potential
for rail bottlenecks
    
    Some competitors working on low-cost incremental expansions
    
    Production costs exposed to natural gas
price risk, Canadian dollar volatility
    
    Water inflow at New Brunswick increases
production costs there and risks loss of
production POTASH OPPORTUNITIES
 
 
    
    Long-term growth in consumption expected to continue
    
    With competitors at or near capacity, our
excess capacity allows us to achieve a higher
share of offshore market growth
    
    Potential need for supply to replace 1.2
million tonnes of lost production from
Uralkalis Berezniki 1
    
    Potential for multi-year strength in
agriculture driven by use of crops for food
and biofuels POTASH THREATS
 
 
    
    Continued upward pricing trend may attract greenfield projects
    
    Demand can be temporarily affected by
changes in offshore markets
    
    Short-term weaknesses in global supply/demand
fundamentals affect PotashCorp
disproportionately




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8 POTASHCORP 2006 FINANCIAL REVIEW / MD&A » NITROGEN
 
 TRINIDAD PRODUCTION GIVES NITROGEN ADVANTAGE
 
  Largest
Offshore Ammonia Capacity in the
Western Hemisphere
 Natural
Gas Price Affects Ammonia Production




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POTASHCORP 2006 FINANCIAL REVIEW / MD&A » NITROGEN 9
  US
Gas and Ammonia Prices Decouple
 NITROGEN STRENGTHS
 
    
    Long-term, lower-cost natural gas contracts in Trinidad
    
    67 percent of our ammonia production is in
Trinidad, close to the US
    
    About 85 percent of our US-manufactured
ammonia is sold to stable industrial
customers
    
    Hedging program mitigates natural gas
price risk related to US production NITROGEN WEAKNESSES
 
    
    33 percent of our ammonia production in the
US, using higher-cost gas
    
    Contractual commitments to US industrial
customers may force us to operate unprofitably
amid rising gas prices, as re-pricing may lag
by 60-90 days
    
    Many nitrogen plants globally, with
significant government ownership and
influence NITROGEN OPPORTUNITIES
 
    
    High US volume demand
    
    Europe now acts as swing supplier with
high gas costs, supporting stronger US
prices
    
    Multi-year strength in agriculture could favor fertilizers
    
    Higher construction costs discourage greenfield plants
    
    LNG projects in low-cost gas regions
provide alternatives for monetizing gas,
reducing new supply pressures in nitrogen NITROGEN THREATS
 
    
    Abundant low-cost natural gas in
developing countries may lead to its
monetization as nitrogen
products
    
    Small supply/demand fluctuations can significantly affect prices
    
    Short construction period for new
capacity can impact the market quickly
    
    Reduction in differential between US and
Trinidad natural gas prices could reduce our
Trinidad advantage
    
    Pending changes in transport regulations
could substantially increase the cost of
transporting ammonia and the difficulty in
siting terminals 2006
Cost of Producing a Tonne of Ammonia




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10 POTASHCORP
2006 FINANCIAL REVIEW / MD&A » PHOSPHATE
 
 THE SPECIALTY PHOSPHATE PRODUCER
 
  
 
    PotashCorp Rock Permits Phosphate Diversification
 Lower Rock Costs Create Competitive Advantage




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POTASHCORP 2006 FINANCIAL REVIEW / MD&A » PHOSPHATE 11
  2006 Cost of Producing a Tonne of Phosphoric Acid
 PHOSPHATE STRENGTHS
 
    
    Significant low-cost phosphate rock reserves
    
    High-quality rock and proven technology
enable economical production of high-margin
industrial and feed products
    
    Mining near processing facilities provides cost advantage
    
    Good position in North American
purified acid and feed phosphate markets PHOSPHATE WEAKNESSES
 
    
    Product mix still requires some DAP/MAP production
    
    Need to transport ammonia to DAP/MAP
plants, which is becoming more difficult
and costly
    
    Higher sulfur, ammonia costs can negatively impact margins
    
    Need to consider alternatives to
Savannah import terminal, which receives
ammonia for DAP production, as lease expires at end of 2008
    
    High fixed costs mean plants do not perform
profitably at lower operating rates PHOSPHATE OPPORTUNITIES
 
    
    Tight phosphate rock, phosphoric acid
and solid fertilizer supply/demand
fundamentals
    
    Few companies globally with rock good enough
to economically produce purified acid
    
    Multi-year strength in agriculture could favor fertilizers PHOSPHATE THREATS
 
    
    Significant government control and
intervention globally in constructing
capacity and restricting imports
    
    Increased offshore DAP production reduces US exports
    
    Low DAP margins can cause producers to
switch to feed production, hurting this
business
    
    High barriers to exit because of
significant environmental restoration and
remediation costs
    
    Environmental and permitting requirements
    
 
    
    In potash  our excess capacity, which will serve a growing market
    
    In nitrogen  our low-cost supply to the US from Trinidad
    
    In phosphate  our rock quality enables diversification into feedand
industrial products




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12 POTASHCORP 2006 FINANCIAL REVIEW / MD&A » OBJECTIVES & STRATEGIES
 
 SECTION 2
 OBJECTIVES AND STRATEGIES
 
 HOW POTASHCORP SEES THE FUTURE
  
 OUR STRATEGY: Potash First for Growth, Trinidad Nitrogen and Purified Acid for Earnings Stability
 
  PotashCorp Builds on Strongest Businesses
 Emphasis on Potash, Trinidad Nitrogen, Purified Acid




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POTASHCORP
2006 FINANCIAL REVIEW / MD&A » POTASH STRATEGY 13
 
 OUR POTASH STRATEGY: Meet Rising World Demand with Our Excess Capacity
 
  
 
    Ensuring the World Has Enough Potash
 PotashCorp Production Is Driven by Markets




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14 POTASHCORP 2006 FINANCIAL REVIEW / MD&A » NITROGEN STRATEGY
 
 OUR NITROGEN STRATEGY: Reduce Volatility by Building on Our Trinidad Asset
 
  
 
    Trinidad Production and US Industrial Products
Drive Nitrogen Gross Margin
 Natural Gas Contracts Keep Trinidad Costs Down




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POTASHCORP 2006 FINANCIAL REVIEW / MD&A » PHOSPHATE STRATEGY 15
 
 OUR PHOSPHATE STRATEGY: Enhance Stability by Developing Industrial and Feed
 
  
 Industrial Products Provide Stability
    
 
    
    With our Potash First strategy, we supply global growth in
fertilizer demand butproduce only what the market needs
    
    In nitrogen, we leverage our lower-cost Trinidad production
    
    In phosphate, we emphasize the industrial and feed products
that provideearnings stability




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16 POTASHCORP 2006 FINANCIAL REVIEW / MD&A » CAPABILITY TO DELIVER
 
 SECTION 3
 CAPABILITY TO DELIVER
 
 OUR COMMITMENT
   Cash Goes to Excess Capacity and Investments
 Strategy Determines Capital Expenditures
   
 POTASH: We Supply the World
 
  Preparing to Meet Rising World Demand
 POTASHCORP PROJECTED
CAPACITY
 (million tonnes KCl)2006 Production
    
    
    7.02006 Idled capacity
    
    
    3.02007 Allan and Esterhazy debottlenecks
    
    
    0.52008 Lanigan debottleneck
    
    
    1.52010 Cory and Patience Lake debottlenecks/expansions
    
    
    1.52013 Esterhazy interest potentially depleted
    
    
    (1.0
    )2011-2015 Other SK and NB expansions
    
    
    3.2Total projected capacity before greenfield
    
    
    15.7




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POTASHCORP
2006 FINANCIAL REVIEW / MD&A » CAPABILITY TO DELIVER 17
  Broadening Our Offshore Investments
  Investing in Our Distribution Chain
 Equity Investments Provide Strategic
and Monetary Value
   
 NITROGEN: Increasing Our Trinidad Advantage




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18 POTASHCORP 2006 FINANCIAL REVIEW / MD&A » CAPABILITY
TO DELIVER
 
 PotashCorps Nitrogen Sales by Plant
   
 PHOSPHATE: Building on Our Product Diversity
 
  
 PotashCorp Is Lowest-Cost Purified Acid Producer
    
 
    
    We are putting resources behind our strategy in all
three nutrients to deliver on our value proposition
    
    We consider our risks as we measure our progress in
achieving our goals




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POTASHCORP
2006 FINANCIAL REVIEW / MD&A » KEY PERFORMANCE DRIVERS 19
 
 KEY PERFORMANCE DRIVERS
 
  
 
   Key Corporate
Goals
    
    Key Performance Drivers
    
    Indicators of PerformanceOutperform our sector and
companies on the Dow Jones
US Basic Materials (DJUSBM)
Index and be the preferred
fertilizer investment
    
      Net income and cash flow
growth, and future growth
potential
    
      PotashCorp and sector share price and DJUSBM Index changes
  PotashCorp cash flow return on investment compared to WACC
  PotashCorp and sector comparative multiple analyses (P/E, CFPS,
EV/EBITDA)
  PotashCorp investor surveysMaximize sustainable segment gross margins
    
      Optimize mix of prices,
volumes, products, customers
  Efficient production, effective
managing of input costs and
hedging strategies
    
      Segment gross margin growth/stability
  Price/volume/cost analysis
  Cash flow return on investment at segment levelBe the preferred supplier
to our customers
    
      Minimize number of
customer complaints
  Primary focus on quality and service
  Order fill rate categories
    
      Frequency and nature of customer complaints
  Monthly and annual customer surveys comparing our performance
to that of our competitorsBe the low-cost supplier
of products into our
primary markets
    
      Reduce cash costs
  Spend sustaining capital to
maintain or improve our low-cost position and productivity
    
      Total per-tonne nutrient/primary product cost, including supporting
selling and administrative expenses
  Percentage of shipments by preferred carrier and route
  Performance reliability relative to maintenance costNo harm to people,
no accidents, no damage
to the environment
    
      Reduce injury rates
  Minimize impact of our
business on the environment
    
      Lost-time/recordable injury rates
  Environmental events, reportable releases and permit excursionsHave motivated, productive employees
    
      Encourage and reward
performance that supports
our strategies
    
      Comparisons with other companies compensation and benefits by
industry, company size and region
  Annual employee surveys to determine engagement with corporate
goals and objectives
  Activities to increase employee productivity and buy-in to objectivesPositively impact the communities where we operate
    
      Contribute to socio-economic
well-being
  Constantly improve on
our leadership in corporate
governance
    
      Media coverage, number of events sponsored, total charitable
donations and volunteer hours
  Community surveys
  Board updates governance practices by monitoring outside opinion
and internal effectiveness
 LEAD THE GLOBAL FERTILIZER INDUSTRY
Using a balanced scorecard-type approach, we have developed a system for tracking the drivers
of our success.




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20 POTASHCORP
2006 FINANCIAL REVIEW / MD&A » REWARDING RESULTS
 
 REWARDING RESULTS: Compensation
 
  Philosophy, Reward Structure and Oversight
 
    Compensation
    
    
    
    
    
    PerformanceElement
    
    Form
    
    Eligibility
    
    Period
    
    DeterminationBase salary
    
    Cash
    
    All salaried
employees
    
    Annual
    
      Targets are set to the median of comparable companies, adjusted
to reflect individual and corporate performance.Short-term incentives
    
    Cash
    
    All executives and most salaried
staff(~1,500 people)
    
    1 year
    
      Based on achieving predetermined goals for corporate performance
or a combination of corporate and operating group performance.
  Can be adjusted (± 20%) to recognize individual performance.Medium-term incentives (MTIP)
    
    Performance share units
    
    All executives
and senior
management(~65 people)
    
    3 years
    
      Units issued at our average share price at award date.
  Units vest and are paid out at the end of the three-year performance
period calculated whereby half the units vest in accordance with
specific total shareholder return (TSR)1targets and half vest in
accordance with our TSR relative to a selected peer groups TSR.
  Payout value is based on the number of vested units multiplied by
our 30-day average share price at the end of the performance period.Long-term incentives
    
    Performance stock options
    
    All executives,
senior management
and other selected
management
(~235 people)
    
    3 years
(vesting)
10 years
(option term)
    
      Performance stock options incorporate a performance-based vesting
schedule measuring the three-year average excess of cash flow
return over our weighted average cost of capital.
  Vested share value is based on our share price appreciation within
the option term.
 1
    
    TSR is the total shareholder return on an
investment in PotashCorp stock from the time the investment is made.
TSR has two components: (1) growth in share price and (2)
related dividend income on the shares.
   PERFORMANCE STOCK OPTIONS ALIGN EXECUTIVE COMPENSATION, SHAREHOLDER INTERESTS
 
  We place significant
emphasis on pay-for-performance,
with at risk components of
total compensation linked
directly to the enhancement of
cash flow return and total
shareholder return. An example
of the performance conditions
that must be achieved before
vesting will occur in our
performance stock option plans
is set out here. For additional
information, please refer to our
2007 proxy circular on our
website.
 PERFORMANCE MEASURE
    
    VESTING SCALE3-Year Average Excess of Cash Flow Return on
Investment over Weighted Average Cost of Capital
    
    Percentage of
Stock Option Grant Vesting<0%
    
    0%0.20%
    
    30%1.20%
    
    70%2.20%
    
    90%2.50%
    
    100%




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POTASHCORP
2006 FINANCIAL REVIEW / MD&A » RISK
MANAGEMENT 21
 
 MANAGING RISK
 
  Political Risk
   Risks Particular to Underground Mines
 Potash Capacity
   
 1 Negligible $5M2Low $5M-49M3Medium $50M-499M4Major $500M-5B5Extreme
$5B5Probable(annual)CBBAA4High (1-3 yrs) DCBBA3Medium(3-10 yrs)DDCBB2Low (10-25 yrs)EDDCB1Remote ( 25 yrs) EEDDCAExtreme:Initiate risk management
activities immediately to reduce risk.
If such activities cannot sufficiently reduce risk level, consider
discontinuation of the applicable business operation in order to
avoid the risk. B Major:
Initiate risk management activities at next available opportunity
to reduce risk. If such activities cannot sufficiently reduce risk level, board
approval is required to confirm acceptance of this major risk level.
C Acceptable: Level of risk is acceptable within tolerances of the current
Risk Management Policy. No additional risk management activities required.
D Low: Monitor risk according to Risk Management Policy requirements,
but no additional risk management activities required.
E Negligible: Consider discontinuing any related risk management
activities in order to direct resources to higher value activities,
providing such discontinuance does not adversely affect any other risk areas.




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22 POTASHCORP
2006 FINANCIAL REVIEW / MD&A » RISK MANAGEMENT
  New Supply Creates Market Imbalance
  Risk of Cyclicality
  Suppressed Demand Creates Market Imbalance
   Security Risks
 Distribution Risks
   Regulatory Risk
  Risk to Reputation




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POTASHCORP
2006 FINANCIAL REVIEW / MD&A » FACTORS THAT SHAPED 2006 BUSINESS CONDITIONS 23
 
 SECTION 4
 PERFORMANCE AND PROSPECTS
 
 FACTORS THAT SHAPED 2006 BUSINESS CONDITIONS
  1
    
    Strong Global Economic GrowthThe world economy continued to perform robustly in 2006. Global GDP grew by 5.1 percent, building on 2004 and 2005 for the strongest three-year
performance in more than 30 years.
Buoyant Asian economies spurred this achievement: China grew by 10.5 percent, India 8.3
percent, Malaysia 5.5 percent, Indonesia 5.2 percent and Thailand 4.5 percent. People spent
much of the resulting higher income on bigger and better diets containing more protein from
animals nourished on grain.
Lifestyle changes included more access to industrial products and use of mechanized
transportation, which increased demand for fuel.2
    
    Oil Prices SoarMore than ever, the world runs on oil. Global demand for transportation fuels jumped in
2006 to supply the needs of the rising world population and increasing industrialization.
The major oil-producing countries were hard-pressed to meet demand from their limited
production capability. Prices rose to record levels early in the year, backed off slightly
but remained high throughout 2006.3
    
    Growth in Fertilizer Demand SlowsHigh fuel prices and weak grain and oilseed prices during the 2006 spring planting season
combined to affect farmers fertilizer application. Many cut back, hoping that fertilizer
prices would soften. As a result, consumption fell below the recent growth trend.
  Potash
    
    
    Nitrogen
    
    
    Phosphate2006
    
    2005
    
    2006
    
    2005
    
    2006
    
    2005Total World
Demand10(Million Product Tonnes)
    
    
    48.2
    
    
    
    51.3
    
    
    
    149.2
    
    
    
    146.4
    
    
    
    61.8
    
    
    
    61.6PotashCorp Share of
World
Production11
    
    
    15%
    
    
    
    17%
    
    
    
    2%
    
    
    
    2%
    
    
    
    6%
    
    
    
    6%
 10-11, See Appendix  Footnotes, Page 89
 4
    
    Extended China/India Negotiations, Strong Brazilian Currency, High Input Costs Temporarily
Reduce Potash ImportsPrice negotiations between China and India and their major suppliers stretched from November
2005 to July 2006. During this period, imports by these countries were down sharply. Brazils
imports were also down from its 2004 record as its strengthening currency reduced farmers
margins on soybeans sold into the international market in US dollars.
 US imports fell because the agricultural sector put off purchasing in hopes that prices would fall,
while high fuel costs and low crop prices reduced application rates.As a result, world potash sales
were down by 6 percent.
 
 5
    
    World Grain Consumption Exceeds ProductionWorld demand for grain grew in 2006 while production fell, due to adverse weather in several
regions and less-than-optimal fertilization. By the end of the current crop year, wheat and
coarse grain inventories are expected to be just 15 percent of world consumption, less than two
months supply  the lowest level ever recorded by USDA. However, the simultaneous long




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24 POTASHCORP 2006 FINANCIAL REVIEW / MD&A » FACTORS THAT SHAPED 2006 BUSINESS CONDITIONS
  decline in stocks-to-use ratios for corn, wheat and rice appears to have reached the point
at which prices rise enough to encourage farmers to grow more. The spinoff effect of three crops
competing for additional acres is strengthening prices for other crops such as soybeans, where
acreage is projected to decline.6
    
    Biofuel Production AcceleratesHigh oil prices and strong demand for transportation fuels boosted the economics for biofuel
production in 2006 and it accelerated around the world, led by the US, Brazil and China. Ethanol
production consumed 17 percent of the corn grown in the US in 2006 and over half of Brazils
sugar cane crop.
 
 7
    
    US Crop Prices Strengthened SubstantiallyDeclining global crop inventories, poor weather and rising demand for corn for biofuel
production all combined to push up US prices for wheat and corn. For the first time since 1996,
US farm gate wheat prices climbed above $4.50 per bushel, while corn prices exceeded $3.00 per
bushel.
 8
    
    Uralkali Flooding Tightens Potash Supply/Demand BalanceIn late October, water began flowing into Uralkalis Berezniki 1 mine, reportedly due to a
failure of the water-protective strata surrounding the potash beds. When the inflow reached
1,200 cubic meters per hour (5,300 US gallons per minute) in late October, the mine, which had
limited remaining ore reserves, was abandoned.Following the flooding loss of Berezniki 1, Uralkali
reduced its production plan for 2007 by 1.2 million tonnes. With most global producers
operating near capacity by year-end, the absence of its product tightened the supply/demand
balance.9
    
    US DAP Exports Continue to FallUS DAP exports fell in 2006, continuing a trend begun in 1999 when offshore capacity started to
grow. Although Indias total imports remained strong at 2.8 million tonnes, Pakistan was down
500,000 tonnes and China 350,000 tonnes. As a result, US exports fell to 47 percent of world
trade.
 
 10
    
    Feed, Industrial Phosphates Demand UpThe global market for feed and industrial phosphates grew by 4 percent in 2006. Feed
product prices strengthened in both domestic and offshore markets.11
    
    Europe Became the Nitrogen Swing SupplierNatural gas prices rose in the EU with oil prices and were higher than in the US. This
forced European nitrogen producers to curtail production as their cash costs approached or
exceeded world ammonia prices. The EU became the marginal world ammonia producer, the swing
supplier. In the US, the ammonia supply/demand balance remained tight, supporting prices.
Nitrogen imports were down as the EU competed for products from low-cost gas regions.




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##### 



POTASHCORP 2006 FINANCIAL REVIEW / MD&A » 2006 FINANCIAL OVERVIEW 25
 
 2006 FINANCIAL OVERVIEW
 
   Dollars (millions, except per-share amounts)
    
    
    % Increase (Decrease)2006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005Sales
    
    $
    3,766.7
    
    
    $
    3,847.2
    
    
    $
    3,244.4
    
    
    
    (2
    )
    
    
    19Gross Margin
    
    $
    1,002.0
    
    
    $
    1,125.0
    
    
    $
    681.4
    
    
    
    (11
    )
    
    
    65Operating Income
    
    $
    875.5
    
    
    $
    892.6
    
    
    $
    514.3
    
    
    
    (2
    )
    
    
    74Net Income
    
    $
    631.8
    
    
    $
    542.9
    
    
    $
    298.6
    
    
    
    16
    
    
    
    82Net Income per Share  Diluted
    
    $
    5.95
    
    
    $
    4.89
    
    
    $
    2.70
    
    
    
    22
    
    
    
    81
   2006 Earnings Compared to Guidance
 
 2006 Earnings Compared to 2005
  
 EffectCause
    
    on EPSPotash realized prices lower
    
    $
    (0.35
    )Potash volumes lower
    
    
    (0.63
    )Increased potash costs
    
    
    (0.21
    )Lower provincial mining taxes
    
    
    0.29Subtotal potash
    
    
    (0.90
    )Lower nitrogen realized prices (exclusive
of purchased product)
    
    
    (0.18
    )Cost of natural gas lower
    
    
    0.57Lower gain on natural gas hedges
    
    
    (0.07
    )Nitrogen costs higher (exclusive of cost of natural gas
and purchased ammonia) and volumes lower
    
    
    (0.20
    )Subtotal nitrogen
    
    
    0.12Phosphate realized prices higher
    
    
    0.08Increased input costs for rock, lower input costs for ammonia
    
    
    (0.05
    )Phosphate other costs higher, higher phosphate sales volumes
    
    
    (0.17
    )Subtotal phosphate
    
    
    (0.14
    )Increase in other income
    
    
    0.12Increase in selling and administrative
    
    
    (0.08
    )Foreign exchange and interest expense variance
    
    
    0.10Subtotal other
    
    
    0.14Subtotal of the above
    
    
    (0.78
    )Higher weighted averaged number of shares outstanding
    
    
    (0.01
    )Income tax refunds received during 2006
    
    
    0.32Canadian federal and provincial income tax
rate reductions during 2006
    
    
    0.42Change in effective annual income tax rate from
33 percent to 30 percent
    
    
    0.25Total variance from 2006 diluted EPS guidance
    
    $
    0.20
 EffectCause
    
    on EPSPotash offshore realized prices lower
    
    $
    (0.12
    )Potash North American realized prices higher
    
    
    0.20Increased potash costs due to foreign exchange
    
    
    (0.16
    )Increased potash costs along with lower
potash sales volumes
    
    
    (0.80
    )Lower provincial mining taxes
    
    
    0.43Subtotal potash
    
    
    (0.45
    )Increased nitrogen realized prices (exclusive
of purchased product)
    
    
    0.14Cost of natural gas lower
    
    
    0.21Nitrogen costs higher (exclusive of cost of natural gas
and purchased ammonia)
    
    
    (0.33
    )Purchased product margin lower
    
    
    (0.07
    )Lower manufactured nitrogen sales volumes
    
    
    (0.12
    )Higher gain on natural gas hedges and purchased
product margin
    
    
    0.15Subtotal nitrogen
    
    
    (0.02
    )Phosphate realized prices higher
    
    
    0.55Increased input costs for ammonia, sulfur and rock
    
    
    (0.51
    )Phosphate sales volumes higher
    
    
    0.12Subtotal phosphate
    
    
    0.16Increase in other income
    
    
    0.19Increase in selling and administrative
    
    
    (0.08
    )Foreign exchange variance and increase in interest expense
    
    
    0.08Subtotal other
    
    
    0.19Subtotal of the above
    
    
    (0.12
    )Reduction in weighted average number of shares outstanding
    
    
    0.25Income tax refunds received during 2006
    
    
    0.31Canadian federal and provincial income tax
rate reductions during 2006
    
    
    0.40Change in effective annual income tax rate from
33 percent to 30 percent
    
    
    0.22Total variance from 2005 diluted EPS
    
    $
    1.06




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##### 



26 POTASHCORP 2006 FINANCIAL REVIEW / MD&A » POTASH RESULTS
 
 BUSINESS SEGMENT REVIEW
 
  
 
 POTASH RESULTS
  % Increase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    % Increase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    % IncreaseDollars (millions)
    
    
    
    (Decrease)
    
    
    
    Tonnes (thousands)
    
    
    
    (Decrease)
    
    
    
    Average Price per Tonne
    
    
    
    (Decrease)2006
    
    
    2005
    
    
    2004
    
    
    
    2006
    
    
    2005
    
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    
    2006
    
    
    2005
    
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    
    2006
    
    
    2005Sales
    
    $
    1,227.5
    
    
    $
    1,341.1
    
    
    $
    1,056.1
    
    
    
    
    (8
    )
    
    
    27Freight
    
    
    130.5
    
    
    
    129.7
    
    
    
    128.7
    
    
    
    
    1
    
    
    
    1Transportation and distribution
    
    
    38.8
    
    
    
    34.5
    
    
    
    32.6
    
    
    
    
    12
    
    
    
    6$
    1,058.2
    
    
    $
    1,176.9
    
    
    $
    894.8
    
    
    
    
    (10
    )
    
    
    32Net salesNorth American
    
    $
    470.5
    
    
    $
    495.6
    
    
    $
    347.5
    
    
    
    
    (5
    )
    
    
    43
    
    
    
    
    2,785
    
    
    
    3,144
    
    
    
    3,246
    
    
    
    
    (11
    )
    
    
    (3
    )
    
    
    $
    168.95
    
    
    $
    157.64
    
    
    $
    107.06
    
    
    
    
    7
    
    
    
    47Offshore
    
    
    576.0
    
    
    
    668.3
    
    
    
    504.6
    
    
    
    
    (14
    )
    
    
    32
    
    
    
    
    4,411
    
    
    
    5,020
    
    
    
    5,030
    
    
    
    
    (12
    )
    
    
    
    
    
    
    $
    130.56
    
    
    $
    133.13
    
    
    $
    100.33
    
    
    
    
    (2
    )
    
    
    331,046.5
    
    
    
    1,163.9
    
    
    
    852.1
    
    
    
    
    (10
    )
    
    
    37
    
    
    
    
    7,196
    
    
    
    8,164
    
    
    
    8,276
    
    
    
    
    (12
    )
    
    
    (1
    )
    
    
    $
    145.42
    
    
    $
    142.56
    
    
    $
    102.97
    
    
    
    
    2
    
    
    
    38Miscellaneous
products
    
    
    11.7
    
    
    
    13.0
    
    
    
    42.7
    
    
    
    
    (10
    )
    
    
    (70
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,058.2
    
    
    
    1,176.9
    
    
    
    894.8
    
    
    
    
    (10
    )
    
    
    32
    
    
    
    
    7,196
    
    
    
    8,164
    
    
    
    8,276
    
    
    
    
    (12
    )
    
    
    (1
    )
    
    
    $
    147.05
    
    
    $
    144.16
    
    
    $
    108.12
    
    
    
    
    2
    
    
    
    33Cost of goods sold
    
    
    497.1
    
    
    
    469.5
    
    
    
    472.0
    
    
    
    
    6
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    69.08
    
    
    $
    57.51
    
    
    $
    57.03
    
    
    
    
    20
    
    
    
    1Gross Margin
    
    $
    561.1
    
    
    $
    707.4
    
    
    $
    422.8
    
    
    
    
    (21
    )
    
    
    67
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    77.97
    
    
    $
    86.65
    
    
    $
    51.09
    
    
    
    
    (10
    )
    
    
    70
  2006 vs 2005
 Highlights
 
    
    PotashCorp entered 2006 with potash shipments to China at a virtual standstill as its
fertilizer buyers negotiated price with suppliers. India followed the same course  and both
countries deferred purchases, drawing down inventories until price settlements were reached in
the third quarter. The China
  Potash gross margin variance attributable to:
 Dollars
(millions)2006 vs 2005Change in Prices/Costs
    
    
    Total GrossChange in
    
    
    
    
    
    
    
    Cost of
    
    
    
    MarginSales Volumes
    
    
    
    Net Sales
    
    
    Goods Sold
    
    
    
    VarianceNorth American
    
    $
    (40.6
    )
    
    
    $
    31.6
    
    
    $
    (8.4
    )
    
    
    $
    (17.4
    )Offshore
    
    
    (56.8
    )
    
    
    
    (11.2
    )
    
    
    (61.6
    )
    
    
    
    (129.6
    )Other1
    
    
    (2.8
    )
    
    
    
    0.4
    
    
    
    3.1
    
    
    
    
    0.7Total
    
    $
    (100.2
    )
    
    
    $
    20.8
    
    
    $
    (66.9
    )
    
    
    $
    (146.3
    )
 1
    
    Includes change in product mix.
 agreement called for a base price increase of $25 per tonne over the 2005 contract
price. The signing of the China deal served to spur shipments across Southeast Asia and
Latin America, where customers had delayed purchasing ahead of the price settlement.
Offshore sales volumes increased in the latter half of the year, but still annual sales
volumes were 12 percent lower than 2005.
 
    
    North American potash demand was constrained during the first three quarters of the
year as customers delayed purchasing and relied on inventories in the face of high fuel
costs and low crop prices.
    
    Reduced sales volumes raised the per-tonne fixed distribution costs for the year and,
combined with softening prices due to extended contract negotiations, resulted in
declining margins on offshore potash sales in 2006. Though North American sales volumes
were down 11 percent compared to 2005, realized prices were 7 percent higher.




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##### 



POTASHCORP
2006 FINANCIAL REVIEW / MD&A POTASH RESULTS 27
  
    
    Following our strategy of producing to meet market demand increased our costs per tonne
during 2006. We incurred 66 plant shutdown weeks, up from 24 weeks during 2005. In response to
increased demand in the latter part of the year, PotashCorp produced a record 2.4 million
tonnes during the fourth quarter, raising 2006 production to 7.0 million tonnes, down from 8.8
million tonnes in 2005.
    
    PotashCorps inventories at the end of the year were reduced to 0.9 million tonnes from a
high of 1.4 million tonnes at mid-year.
 Sales and Cost of Goods Sold
  
    
    Sales by Canpotex were reduced from 8.2 million to 6.7 million tonnes, contributing to the
12-percent decline in our offshore sales volumes. Canpotex shipments to China and India
totalled 2.0 million tonnes, down 40 percent from the 3.3 million tonnes shipped in 2005.
Except for certain shipments from Russia, China was virtually absent from the market until
late in July 2006 as it waited to conclude new pricing contracts with suppliers. Brazil took
approximately 1.0 million tonnes of potash from Canpotex in 2006, a reduction of 4 percent
from 2005, although taking 30 percent more potash in fourth-quarter 2006 than in
fourth-quarter 2005. Brazil continued to be affected by a strong real relative to the US
dollar and lower soybean prices. This pressured margins for Brazilian farmers and limited
credit availability, leading to fewer acres being planted and a decrease in imported crop
inputs. Hesitancy to purchase large positions in potash until conclusion of the Chinese
negotiations led Brazilian customers to delay purchases. Following the negotiations and
coupled with improving market conditions, Brazils volumes increased sharply. Sales volumes in
2006 increased to many smaller potash-consuming countries such as Indonesia, Malaysia, the
Philippines, Taiwan and Vietnam, which together took 1.7 million tonnes from Canpotex, an
increase of 20 percent over 2005.
    
    North American sales volumes dropped for the year despite a rebound in the fourth quarter.
First- and second-quarter reductions resulted from reduced field applications due to
 low crop prices, high energy input costs and, to a lesser degree, weather. Sales volumes were
relatively flat in the third quarter; however, with demand growing and record-low inventories,
prices for many crops  including corn, wheat and soybeans  began to rise significantly, giving
farmers the motivation and the resources to boost their fertilizer use. Consequently, we shipped
record potash volumes in the fourth quarter (0.85 million tonnes).
 
    
    Realized prices in the offshore market were negatively impacted initially by higher per-unit
throughput distribution costs resulting from the reduced sales volumes. Higher prices were
realized during the latter part of the year as potash flowing to China through Canpotex was at
the higher 2006 price. Realized prices were lower on sales to Brazil due to increased
competition in the marketplace early in the year, though they rebounded strongly after
completion of the price negotiations with China and India. Realized prices in the North
American market were 7 percent higher as price increases announced during 2005 held
    Potash Production(million tonnes KCl)Production
    
    
    
    
    
    Mine SiteCapacity
    
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    
    Employees(active)Lanigan SK
    
    
    3.828
    
    
    
    
    1.471
    
    
    
    2.023
    
    
    
    2.025
    
    
    
    
    402Rocanville SK
    
    
    3.044
    
    
    
    
    1.897
    
    
    
    2.573
    
    
    
    1.833
    
    
    
    
    343Allan SK
    
    
    1.885
    
    
    
    
    .992
    
    
    
    1.431
    
    
    
    1.344
    
    
    
    
    312Cory SK
    
    
    1.361
    
    
    
    
    .772
    
    
    
    .826
    
    
    
    .738
    
    
    
    
    224Patience Lake SK
    
    
    1.033
    
    
    
    
    .190
    
    
    
    .251
    
    
    
    .239
    
    
    
    
    66Esterhazy SK1
    
    
    .953
    
    
    
    
    .953
    
    
    
    .953
    
    
    
    .953
    
    
    
    
    New Brunswick NB
    
    
    .785
    
    
    
    
    .743
    
    
    
    .759
    
    
    
    .782
    
    
    
    
    323TOTAL
    
    
    12.889
    
    
    
    
    7.018
    
    
    
    8.816
    
    
    
    7.914
    
    
    
    
    1,670
 1
    
    PotashCorps mineral rights at Esterhazy are mined by Mosaic Potash Esterhazy Limited Partnership under a
mining and processing agreement.
For calendar year 2007, our production allocation is 0.953 million tonnes.




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##### 



28 POTASHCORP 2006 FINANCIAL REVIEW / MD&A » POTASH
RESULTS / NITROGEN RESULTS
  into the first half of 2006, but dropped off during the third quarter as higher producer
inventories at the start of the quarter contributed to heightened competitive pressures. Prices
increased in the fourth quarter as our North American price increase announced for October 1
began to be realized in November. Prices in the North American market were $38 per tonne, or 29 percent, higher than offshore prices. The gap between the two markets is due in part to offshore
contracts lagging behind North American spot market increases. It also reflects product quality,
as North American customers prefer granular product that commands a premium over standard product
more typically consumed offshore.
 
    
    The change in gross margin was negatively impacted by higher cost of goods sold. Production
shutdowns, higher depreciation charges due to completion of some of our expansion projects,
higher natural gas prices earlier in the year and escalating prices for supplies and services
throughout the year increased unit cost of goods sold. The impact of a stronger average
Canadian dollar for most of the year also negatively impacted cost of goods sold, by over
$3.50 per tonne.
 2005 vs 2004
  
    
    Price increases were achieved in all markets due to strong demand for potash. North American
realized prices rose 47 percent, or over $50 per tonne, due to product price increases
effected throughout the year.
    
    World GDP grew by an estimated 4.3 percent in 2005, led by countries such as China and India.
This contributed to strong potash demand from these key offshore customers. Canpotex sold
record volumes during 2005 as its sales to India and China
 rose 53 percent and 32 percent, respectively. This was partially offset by a decline in
sales volumes to Brazil, as well as Indonesia, Malaysia and Vietnam, which all experienced
significant drought during the year. In Brazil, our largest purchasing country in 2004, a
strong currency, weak soybean prices and tighter agricultural credit negatively affected
consumption. Despite the record sales volumes of 8.2 million tonnes achieved by Canpotex
(2004  7.8 million tonnes), of which we supplied 54 percent, our total offshore sales
volumes were below 2004 due to Brazils lower imports from our New Brunswick operation.
Sales to China represented 26 percent of our offshore sales volumes, while Brazil
represented 17 percent and India 10 percent.
 
    
    Saskatchewan competitors were product-constrained throughout most of the year. As a
result, we were able to supply a greater portion of the North American market. The North
American potash market took 12 percent fewer tonnes during 2005 because a sharp spike in
energy costs combined with low crop commodity prices led dealers to step back from the
fertilizer market in the fall after a strong first half. Our North American sales volumes
for the year were still 3.1 million tonnes, only 3 percent lower than 2004.
 
    
    PotashCorp produced a record 8.8 million tonnes of potash in 2005. The expansion at
Rocanville and additional shifts at Lanigan and Allan early in the year increased
production from 7.9 million tonnes in 2004 and resulted in economies of scale and higher
operating efficiencies. Costs on a per-tonne basis rose 1 percent from the prior year, due
to higher energy costs and the economic impact of a stronger Canadian dollar. A decline in
the US dollar compared to the Canadian dollar during 2005 negatively impacted cost of
goods sold by over $3.00 per tonne.
   
 NITROGEN RESULTS
 % Increase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    % Increase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    % IncreaseDollars (millions)
    
    
    
    (Decrease)
    
    
    
    Tonnes (thousands)
    
    
    
    (Decrease)
    
    
    
    Average Price per Tonne
    
    
    
    (Decrease)2006
    
    
    2005
    
    
    2004
    
    
    
    2006
    
    
    2005
    
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    
    2006
    
    
    2005
    
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    
    2006
    
    
    2005Sales
    
    $
    1,284.1
    
    
    $
    1,368.8
    
    
    $
    1,210.4
    
    
    
    
    (6
    )
    
    
    13Freight
    
    
    36.8
    
    
    
    39.9
    
    
    
    38.1
    
    
    
    
    (8
    )
    
    
    5Transportation
and
distribution
    
    
    52.2
    
    
    
    49.5
    
    
    
    42.3
    
    
    
    
    5
    
    
    
    17$
    1,195.1
    
    
    $
    1,279.4
    
    
    $
    1,130.0
    
    
    
    
    (7
    )
    
    
    13Net sales
Ammonia
    
    $
    499.7
    
    
    $
    490.0
    
    
    $
    458.0
    
    
    
    
    2
    
    
    
    7
    
    
    
    
    1,695
    
    
    
    1,672
    
    
    
    1,776
    
    
    
    
    1
    
    
    
    (6
    )
    
    
    $
    294.84
    
    
    $
    293.05
    
    
    $
    257.85
    
    
    
    
    1
    
    
    
    14Urea
    
    
    317.8
    
    
    
    369.5
    
    
    
    259.1
    
    
    
    
    (14
    )
    
    
    43
    
    
    
    
    1,199
    
    
    
    1,321
    
    
    
    1,165
    
    
    
    
    (9
    )
    
    
    13
    
    
    
    $
    264.97
    
    
    $
    279.63
    
    
    $
    222.44
    
    
    
    
    (5
    )
    
    
    26Nitrogen
solutions,
nitric acid,
ammonium nitrate
    
    
    305.4
    
    
    
    284.2
    
    
    
    239.2
    
    
    
    
    7
    
    
    
    19
    
    
    
    
    1,781
    
    
    
    1,850
    
    
    
    1,797
    
    
    
    
    (4
    )
    
    
    3
    
    
    
    $
    171.45
    
    
    $
    153.67
    
    
    $
    133.13
    
    
    
    
    12
    
    
    
    15Purchased
    
    
    43.7
    
    
    
    109.9
    
    
    
    151.5
    
    
    
    
    (60
    )
    
    
    (27
    )
    
    
    
    145
    
    
    
    377
    
    
    
    612
    
    
    
    
    (62
    )
    
    
    (38
    )
    
    
    $
    301.92
    
    
    $
    291.28
    
    
    $
    247.66
    
    
    
    
    4
    
    
    
    181,166.6
    
    
    
    1,253.6
    
    
    
    1,107.8
    
    
    
    
    (7
    )
    
    
    13
    
    
    
    
    4,820
    
    
    
    5,220
    
    
    
    5,350
    
    
    
    
    (8
    )
    
    
    (2
    )
    
    
    $
    242.03
    
    
    $
    240.15
    
    
    $
    207.07
    
    
    
    
    1
    
    
    
    16Miscellaneous
    
    
    28.5
    
    
    
    25.8
    
    
    
    22.2
    
    
    
    
    10
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,195.1
    
    
    
    1,279.4
    
    
    
    1,130.0
    
    
    
    
    (7
    )
    
    
    13
    
    
    
    
    4,820
    
    
    
    5,220
    
    
    
    5,350
    
    
    
    
    (8
    )
    
    
    (2
    )
    
    
    $
    247.93
    
    
    $
    245.09
    
    
    $
    211.23
    
    
    
    
    1
    
    
    
    16Cost of goods sold
    
    
    879.5
    
    
    
    960.7
    
    
    
    887.2
    
    
    
    
    (8
    )
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    182.45
    
    
    $
    184.04
    
    
    $
    165.84
    
    
    
    
    (1
    )
    
    
    11Gross Margin
    
    $
    315.6
    
    
    $
    318.7
    
    
    $
    242.8
    
    
    
    
    (1
    )
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    65.48
    
    
    $
    61.05
    
    
    $
    45.39
    
    
    
    
    7
    
    
    
    35




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##### 



POTASHCORP 2006 FINANCIAL REVIEW / MD&A » NITROGEN RESULTS 29
  Nitrogen gross margin variance attributable to:
 Dollars (millions)2006 vs 2005Change in Prices/Costs
    
    
    Total GrossChange in
    
    
    
    
    
    
    
    Cost of
    
    
    
    MarginSales Volumes
    
    
    
    Net Sales
    
    
    Goods Sold
    
    
    
    VarianceAmmonia
    
    $
    2.8
    
    
    
    $
    4.0
    
    
    $
    (17.0
    )
    
    
    $
    (10.2
    )Urea
    
    
    (14.6
    )
    
    
    
    (17.7
    )
    
    
    (1.1
    )
    
    
    
    (33.4
    )Solutions, NA, AN
    
    
    (2.7
    )
    
    
    
    32.2
    
    
    
    (1.8
    )
    
    
    
    27.7Purchased
    
    
    (7.6
    )
    
    
    
    1.5
    
    
    
    (3.0
    )
    
    
    
    (9.1
    )Hedge gains
    
    
    
    
    
    
    
    
    
    
    
    24.9
    
    
    
    
    24.9Other1
    
    
    0.9
    
    
    
    
    (4.5
    )
    
    
    0.6
    
    
    
    
    (3.0
    )Total
    
    $
    (21.2
    )
    
    
    $
    15.5
    
    
    $
    2.6
    
    
    
    $
    (3.1
    )
 1 Includes change in product mix.
 2006 vs 2005
 Highlights
 
    
    Rising global natural gas prices led to nitrogen production curtailments, particularly in
Western Europe, and high prices overseas in 2006. With higher ocean freight also a factor,
less nitrogen from Baltic and Arab Gulf producers found its way to the US, reducing
competitive pressures in North America.
    
    North American natural gas spot prices dropped significantly throughout 2006 compared to the
high levels seen in late 2005 during the aftermath of hurricanes in the US Gulf region, which
negatively affected realized prices. However, ammonia and urea prices strengthened
significantly later in the year as heightened demand and tight global supply conditions led to
a decoupling from US natural gas costs. Natural gas costs (exclusive of the benefit of our
North American hedging program) were 8 percent lower than in 2005, while realized ammonia
prices were 1 percent higher and realized urea prices 5 percent lower.
    
    Our Trinidad facility, which benefits from long-term, lower-cost natural gas price contracts,
delivered $182.5 million (or 58 percent) of nitrogen gross margin for the year. Our US
operations contributed $59.6 million in gross margin, and we gained $73.5 million from our
natural gas hedges during the year.
    
    In September 2006, PotashCorp elected to permanently discontinue ammonia and urea production
at Memphis, Tennessee. The plant had been put into indefinite shutdown mode in June 2003 as
high natural gas costs were eroding nitrogen fertilizer margins. There was no material
financial statement impact resulting from these changes.
 Sales and Cost of Goods Sold
  
    
    High natural gas prices that were sustained at more than $13 per MMBtu during the fourth
quarter of 2005 caused ammonia prices to climb rapidly in late 2005 and led to industry
production curtailments, tightening market supply. Though North American natural gas spot
prices dropped significantly during the first half
 of 2006, ammonia and urea prices continued to exceed 2005 levels until the third quarter. Tight
global supply conditions led to nitrogen prices decoupling from gas costs through the second half
of 2006, but fourth-quarter ammonia and urea prices were lower compared to the peaks reached in
fourth-quarter 2005 when the aftermath of Hurricane Katrina was still affecting natural gas
costs. Realized annual ammonia prices were 1 percent higher than in 2005 though urea prices were
5 percent lower. Realized prices for nitric acid and ammonium nitrate generally followed the rise
in ammonia prices. Higher ammonium nitrate realized prices contributed a favorable $29.6 million
to the change in gross margin as a result of our customer contracts tied to either natural gas
prices or the NOLA ammonia price, but on a quarterly time-lag basis.
 
    
    Total nitrogen sales volumes declined by 8 percent. Nitrogen fertilizer sales represented the
majority of this drop, down 23 percent primarily due to mechanical production problems and gas
input supply constraints. We sold less purchased product in 2006, as less product was
available in the market due to offshore production being redirected to Europe in search of
higher netbacks.
    
    Cost of goods sold declined on a per-tonne basis, positively contributing to the change in
gross margin by $2.6 million. Higher natural gas costs earlier in 2006 curtailed production
at Augusta and Lima. Mechanical problems at Lima also limited its production in the second and
third quarters. Finally, reduced production at our 01 and 02 plants in Trinidad due to
additional plant turnarounds related to debottlenecking projects increased costs. These were
partially offset by lower natural gas costs later in the year. Natural gas costs continue to
be the single most important contributor to cost of goods sold, typically representing between
75 percent and 90 percent of the cash cost of producing one tonne of ammonia. The companys
total average natural gas cost, including the benefit of our hedge and lower-cost Trinidad gas
contracts, was $3.83 per MMBtu, 14 percent lower than in 2005. Our US natural gas hedging
activities contributed $73.5 million to gross margin, compared to $48.6 million last year.
 2005 vs 2004
  
    
    Hurricanes that struck the US Gulf region during 2005 and cold weather late in the year led
to high US natural gas prices during the fourth quarter. This caused ammonia prices to climb
rapidly late in 2005 and led North American producers to curtail half of their ammonia
operating capacity by year-end, tightening market supply.
    
    Urea realized prices increased 26 percent due to tighter supply/demand fundamentals in world
trade, as higher natural gas prices caused further US nitrogen curtailments and Chinas




---



##### 



30 POTASHCORP 2006 FINANCIAL REVIEW / MD&A » NITROGEN RESULTS
  export taxes reduced its urea exports by over 2 million tonnes compared to 2004.
Realized prices for ammonia grew by 14 percent as a result of the high gas costs and
production curtailments in the US. Tight supply led to increased ammonia imports that were
subject to high freight rates which further influenced prices. The rise in realized prices
for ammonia and urea favorably impacted margins due to our long-term, lower-cost natural
gas price contracts in Trinidad. Our Trinidad facility provided $217.1 million of 2005
gross margin and contributed 68 percent of nitrogen gross margin, compared to $145.3
million, or 60 percent, in 2004. Realized prices for nitrogen solutions, nitric acid and
ammonium nitrate generally followed the rise in ammonia and urea prices, as a number of our
customer contracts are tied to either natural gas prices or the NOLA ammonia price.
 
    
    Cost of goods sold increased 11 percent per tonne. Higher natural gas costs, which
led to production curtailments at Augusta and Lima during the fourth quarter of 2005, were
partially offset by increased production at our Trinidad operation. Our total average
natural gas cost, including the benefit of the natural gas hedges and our lower-cost
Trinidad gas contracts, was $4.46 per MMBtu in 2005, 20 percent higher than in 2004. Our
North American natural gas hedging activities contributed $48.6 million to gross margin,
compared to $43.0 million in 2004.
    
    The major debottlenecking projects at our 03 and 04 Trinidad plants were completed
during the year, resulting in additional ammonia production capacity.
 
    Nitrogen Production(million tonnes)Ammonia1
    
    
    Urea Solids
    
    
    Nitrogen Solutions2Annual
    
    
    Production
    
    
    Annual
    
    
    Production
    
    
    Annual
    
    
    ProductionCapacity
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    Capacity
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    Capacity
    
    
    2006
    
    
    2005
    
    
    2004Trinidad4
    
    
    2.177
    
    
    
    1.932
    
    
    
    1.887
    
    
    
    1.837
    
    
    
    .709
    
    
    
    .688
    
    
    
    .748
    
    
    
    .619
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Augusta GA5
    
    
    .688
    
    
    
    .633
    
    
    
    .655
    
    
    
    .665
    
    
    
    .381
    
    
    
    .318
    
    
    
    .360
    
    
    
    .368
    
    
    
    .581
    
    
    
    .197
    
    
    
    .242
    
    
    
    .225Lima OH6
    
    
    .588
    
    
    
    .339
    
    
    
    .382
    
    
    
    .460
    
    
    
    .329
    
    
    
    .186
    
    
    
    .225
    
    
    
    .238
    
    
    
    .227
    
    
    
    .071
    
    
    
    .079
    
    
    
    .104Geismar LA7
    
    
    .483
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.028
    
    
    
    .098
    
    
    
    .118
    
    
    
    TOTAL
    
    
    3.936
    8
    
    
    2.904
    
    
    
    2.924
    
    
    
    2.962
    
    
    
    1.419
    8
    
    
    1.192
    
    
    
    1.333
    
    
    
    1.225
    
    
    
    1.836
    
    
    
    .366
    
    
    
    .439
    
    
    
    .329Nitric Acid1,3
    
    
    Ammonium Nitrate SolidsAnnual
    
    
    
    Production
    
    
    Annual
    
    
    
    Production
    
    EmployeesCapacity
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    Capacity
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    ActiveTrinidad
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    410Augusta GA
    
    
    .541
    
    
    
    .529
    
    
    
    .518
    
    
    
    .544
    
    
    
    .538
    
    
    
    .536
    
    
    
    .503
    
    
    
    .544
    
    
    
    118Lima OH
    
    
    .100
    
    
    
    .098
    
    
    
    .098
    
    
    
    .103
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    9Geismar LA
    
    
    .844
    
    
    
    .531
    
    
    
    .568
    
    
    
    .521
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59TOTAL
    
    
    1.485
    
    
    
    1.158
    
    
    
    1.184
    
    
    
    1.168
    
    
    
    .538
    
    
    
    .536
    
    
    
    .503
    
    
    
    .544
    
    
    
    593
    10
  1
    
    A substantial portion is upgraded to value-added products.2
    
    Based on 32% N content.3
    
    As 100% HNO3 tonnes.4
    
    Capital project expansion raised ammonia capacity by 170,000 tonnes.5
    
    Ammonium nitrate solids capacity increased by 26,000 tonnes.6
    
    Ammonia capacity increased by 38,000 tonnes.
 7
    
    Indefinitely shut down production of ammonia and nitrogen solutions June 4, 2003;
restarted nitrogen solutions production on September 15, 2005.8
    
    Memphis plant permanently discontinued production in September 2006, reducing total
ammonia capacity by 371,000 tonnes and total urea solids capacity by 409,000 tonnes.9
    
    INEOS USA LLC operates the Lima facility under an operational agreement with PCS
Nitrogen.10
    
    487 contract employees work at the nitrogen plants, for a total active workforce of
1,080.




---



##### 



POTASHCORP
2006 FINANCIAL REVIEW / MD&A PHOSPHATE RESULTS 31
 
 PHOSPHATE RESULTS
 % Increase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    % Increase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    % IncreaseDollars (millions)
    
    
    
    (Decrease)
    
    
    
    Tonnes (thousands)
    
    
    
    (Decrease)
    
    
    
    Average Price per Tonne
    
    
    
    (Decrease)2006
    
    
    2005
    
    
    2004
    
    
    
    2006
    
    
    2005
    
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    
    2006
    
    
    2005
    
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    
    2006
    
    
    2005Sales
    
    $
    1,255.1
    
    
    $
    1,137.3
    
    
    $
    977.9
    
    
    
    
    10
    
    
    
    16Freight
    
    
    88.5
    
    
    
    80.1
    
    
    
    71.9
    
    
    
    
    10
    
    
    
    11Transportation and distribution
    
    
    43.1
    
    
    
    37.9
    
    
    
    29.4
    
    
    
    
    14
    
    
    
    29$
    1,123.5
    
    
    $
    1,019.3
    
    
    $
    876.6
    
    
    
    
    10
    
    
    
    16Net sales
Fertilizer  liquids
    
    $
    240.6
    
    
    $
    208.2
    
    
    $
    147.3
    
    
    
    
    16
    
    
    
    41
    
    
    
    
    1,017
    
    
    
    931
    
    
    
    704
    
    
    
    
    9
    
    
    
    32
    
    
    
    $
    236.53
    
    
    $
    223.68
    
    
    $
    209.17
    
    
    
    
    6
    
    
    
    7Fertilizer
 solids
    
    
    391.6
    
    
    
    346.7
    
    
    
    324.7
    
    
    
    
    13
    
    
    
    7
    
    
    
    
    1,634
    
    
    
    1,516
    
    
    
    1,590
    
    
    
    
    8
    
    
    
    (5
    )
    
    
    $
    239.64
    
    
    $
    228.60
    
    
    $
    204.16
    
    
    
    
    5
    
    
    
    12Feed
    
    
    239.2
    
    
    
    221.0
    
    
    
    190.6
    
    
    
    
    8
    
    
    
    16
    
    
    
    
    780
    
    
    
    860
    
    
    
    888
    
    
    
    
    (9
    )
    
    
    (3
    )
    
    
    $
    306.69
    
    
    $
    256.96
    
    
    $
    214.78
    
    
    
    
    19
    
    
    
    20Industrial
    
    
    239.7
    
    
    
    231.2
    
    
    
    204.1
    
    
    
    
    4
    
    
    
    13
    
    
    
    
    647
    
    
    
    664
    
    
    
    611
    
    
    
    
    (3
    )
    
    
    9
    
    
    
    $
    370.42
    
    
    $
    348.12
    
    
    $
    334.09
    
    
    
    
    6
    
    
    
    41,111.1
    
    
    
    1,007.1
    
    
    
    866.7
    
    
    
    
    10
    
    
    
    16
    
    
    
    
    4,078
    
    
    
    3,971
    
    
    
    3,793
    
    
    
    
    3
    
    
    
    5
    
    
    
    $
    272.46
    
    
    $
    253.61
    
    
    $
    228.50
    
    
    
    
    7
    
    
    
    11Miscellaneous
    
    
    12.4
    
    
    
    12.2
    
    
    
    9.9
    
    
    
    
    2
    
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,123.5
    
    
    
    1,019.3
    
    
    
    876.6
    
    
    
    
    10
    
    
    
    16
    
    
    
    
    4,078
    
    
    
    3,971
    
    
    
    3,793
    
    
    
    
    3
    
    
    
    5
    
    
    
    $
    275.48
    
    
    $
    256.66
    
    
    $
    231.11
    
    
    
    
    7
    
    
    
    11Cost of goods sold
    
    
    998.2
    
    
    
    920.4
    
    
    
    860.8
    
    
    
    
    8
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    244.75
    
    
    $
    231.75
    
    
    $
    226.94
    
    
    
    
    6
    
    
    
    2Gross Margin
    
    $
    125.3
    
    
    $
    98.9
    
    
    $
    15.8
    
    
    
    
    27
    
    
    
    526
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    30.73
    
    
    $
    24.91
    
    
    $
    4.17
    
    
    
    
    23
    
    
    
    497
  Phosphate gross margin variance attributable to:
 Dollars (millions)2006 vs 2005Change
    
    
    Change in Prices/Costs
    
    
    Total Grossin Sales
    
    
    
    
    
    
    
    Cost of
    
    
    
    MarginVolumes
    
    
    
    Net Sales
    
    
    Goods Sold
    
    
    
    VarianceFertilizer  liquids
    
    $
    19.0
    
    
    
    $
    13.5
    
    
    $
    (20.4
    )
    
    
    $
    12.1Fertilizer  solids
    
    
    12.7
    
    
    
    
    17.8
    
    
    
    (41.2
    )
    
    
    
    (10.7
    )Feed
    
    
    (2.2
    )
    
    
    
    38.8
    
    
    
    (3.8
    )
    
    
    
    32.8Industrial
    
    
    (3.5
    )
    
    
    
    14.5
    
    
    
    (19.0
    )
    
    
    
    (8.0
    )Other1
    
    
    7.4
    
    
    
    
    (7.5
    )
    
    
    0.3
    
    
    
    
    0.2Total
    
    $
    33.4
    
    
    
    $
    77.1
    
    
    $
    (84.1
    )
    
    
    $
    26.4
 1
    
    Includes change in product mix.
 2006 vs 2005
 Highlights
 
    
    In 2006, phosphate generated $125.3 million in gross margin, 27 percent higher than the $98.9
million in 2005. Phosphate gross margin was negatively impacted by a $6.3-million writedown of
assets at Geismar during 2006.
    
    Price increases were realized in all major product categories, in response to continuing high
input costs and reasonably tight supply/demand fundamentals.
    
    Specialty products remained the foundation of our phosphate business, proving their value as
stable, higher margin businesses. Feed and industrial products contributed $55.1 million and
$46.3 million of 2006 gross margin, respectively, while liquid fertilizer, which was directly
impacted by the above-mentioned writedown, added $27.1 million for the year after the
writedown. Within industrial, purified phosphoric acid was again the most profitable product,
generating gross margin of $47.3 million for the year, representing 27 percent of net sales.
 Sales and Cost of Goods Sold
 
    
    Higher prices realized in the feed and fertilizer markets, due to tight industry
fundamentals, were supplemented by industrial price increases implemented in 2005 that held
through 2006. Higher feed prices implemented as a result of a strong pricing stance over
volumes contributed $38.8 million to the gross margin increase. Of this increase, Monocal
represented $22.6 million due to higher realized prices achieved in both the North American
and offshore markets. Fertilizer prices contributed positively to the change in gross margin
due to stronger demand.
    
    Sales volumes were relatively flat, though there was a change in product mix. Fertilizer
sales volumes improved, contributing $31.7 million to the change in gross margin, as
supply/demand fundamentals were strong. This was partially offset by a 9-percent decline in
feed sales volumes resulting from our decision to remain firm on pricing and reduce sales of
lower margin products, and a 3-percent decline in industrial sales volumes due to reduced
market demand.
    
    The price variance in cost of goods sold negatively impacted the change in gross margin by
$84.1 million, primarily due to higher raw material costs and a change in product mix.
However, 8 percent higher sulfur prices and 7 percent higher ammonia prices combined to reduce
gross margin by $11.4 million and $8.1 million, respectively. Phosphate rock costs were up 5
percent as a result of higher costs for purchased rock at Geismar and higher electrical and
chemical processing costs at Aurora and White Springs. The writedown of assets, a change in
product mix (requiring more ammonia to be used), higher depreciation charges and escalating
prices for supplies and services throughout the year further increased costs.




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##### 



32 POTASHCORP 2006 FINANCIAL REVIEW / MD&A » PHOSPHATE RESULTS
  2005 vs 2004
  
    
    Higher-margin industrial phosphate products represented 55 percent of phosphate gross margin
at $54.3 million in 2005, compared to $47.7 million in 2004, when all other major product
categories saw negative gross margins.
    
    Increased export demand, industry curtailments, higher ammonia and sulfur input costs and the
closure of a competitors plant led to price increases in all major product categories. In
feed, we benefited from tighter North American supplies and higher prices. Realized prices for
solid fertilizers were up as demand in India and Pakistan increased during 2005. As well,
industry curtailments and production cutbacks in the US during the latter part of 2005
(resulting from the continuing effects of Hurricanes Katrina and Rita and the closure of US
Chems plant) led to reduced supply. Liquid phosphate fertilizers benefited from strong
demand, resulting in higher realized prices. Price increases for liquid fertilizers in
 the Indian market were a major contributor to overall favorable offshore price
realizations, but higher prices in the North American market were also achieved.
 
    
    Liquid fertilizer sales volumes were 32 percent higher as the benefit of the first
full year of an MGA contract with India was realized. These volumes were partially offset
by declines in solid fertilizer volumes as reduced demand in Brazil more than offset
higher Pakistan and India purchases. The decline in solid fertilizer volumes positively
impacted gross margin as the products for which sales declined were lower margin products.
    
    Cost of goods sold rose by $59.6 million. Although a 7-percent increase in phosphoric
acid production levels allowed us to benefit from operating rate efficiencies, we
experienced an unfavorable price variance of $52.6 million due to increases in chemical,
reagent and energy costs, as well as higher fixed costs (primarily fringe benefits and
accretion expense associated with asset retirement obligations). Additionally, raw
material input costs for ammonia and sulfur increased by 10 percent and 3 percent,
respectively. The cost and availability of both of these inputs were negatively impacted
by the hurricanes.
    Purified Acid Production 2 5
 Annual
    
    
    
    
    
    
    ProductionCapacity
    
    
    2006
    
    
    2005
    
    
    2004Aurora NC
    
    .3331
    
    
    .245
    
    
    .248
    
    
    .246
 1
    
    Reflects an 82,000-tonne expansion as of July 1, 2006.
  Phosphate Feed Production
 Annual
    
    
    
    
    
    Production
    
    
    
    
    
    EmployeesCapacity
    
    2006
    
    2005
    
    2004
    
    (active)Marseilles IL
    
    
    .278
    
    
    
    .119
    
    
    
    .127
    
    
    
    .138
    
    
    
    25White Springs FL (Monocal)
    
    
    .272
    
    
    
    .212
    
    
    
    .190
    
    
    
    .126
    
    
    
    26Weeping Water NE
    
    
    .209
    
    
    
    .117
    
    
    
    .119
    
    
    
    .122
    
    
    
    33Joplin MO
    
    
    .163
    
    
    
    .082
    
    
    
    .080
    
    
    
    .087
    
    
    
    24Aurora NC (DFP)
    
    
    .159
    
    
    
    .085
    
    
    
    .115
    
    
    
    .079
    
    
    
    28White Springs FL (DFP)1
    
    
    .100
    
    
    
    
    
    
    
    .044
    
    
    
    .086
    
    
    
    Fosfatos do Brasil
    
    
    .110
    
    
    
    .049
    
    
    
    .076
    
    
    
    .075
    
    
    
    90TOTAL
    
    
    1.291
    
    
    
    .664
    
    
    
    .751
    
    
    
    .713
    
    
    
    226
 1
    
    Ceased production July 31, 2005.
 
    Rock and Acid Production
 Phosphate Rock Production (million tonnes)
    
    Phosphoric Acid (million tonnes P2O5)Annual
    
    
    
    
    
    Production
    
    
    
    
    
    Annual
    
    
    
    
    
    Production
    
    
    
    
    
    EmployeesCapacity
    
    2006
    
    2005
    
    2004
    
    Capacity
    
    2006
    
    2005
    
    2004
    
    (active)Aurora NC
    
    
    6.000
    
    
    
    4.577
    
    
    
    4.417
    
    
    
    3.964
    
    
    
    1.202
    
    
    
    1.080
    
    
    
    1.048
    
    
    
    1.018
    
    
    
    1,011White Springs FL
    
    
    3.600
    
    
    
    3.114
    
    
    
    3.186
    
    
    
    2.745
    
    
    
    .966
    
    
    
    .881
    
    
    
    .865
    
    
    
    .773
    
    
    
    860Geismar LA
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    .202
    
    
    
    .147
    
    
    
    .184
    
    
    
    .171
    
    
    
    75TOTAL
    
    
    9.600
    
    
    
    7.691
    
    
    
    7.603
    
    
    
    6.709
    
    
    
    2.370
    
    
    
    2.108
    
    
    
    2.097
    
    
    
    1.962
    
    
    
    1,946




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##### 



POTASHCORP
2006 FINANCIAL REVIEW / MD&A » PHOSPHATE RESULTS / EXPENSES & OTHER INCOME 33
  Phosphate Production
 Aurora
    
    
    White Springs
    
    
    GeismarAnnual
    
    
    
    
    
    Production
    
    
    Annual
    
    
    
    
    
    Production
    
    
    Annual
    
    
    
    
    
    ProductionCapacity
    
    
    
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    Capacity
    
    
    
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    Capacity
    
    
    
    
    
    2006
    
    
    2005
    
    
    2004Liquids:
    MGA1
    
    
    1.835
    
    
    
    
    
    
    
    1.722
    
    
    
    1.697
    
    
    
    1.687
    
    
    
    1.908
    
    
    
    
    
    
    
    .843
    
    
    
    .879
    
    
    
    .858
    
    
    
    .337
    
    
    
    
    
    
    
    .241
    
    
    
    .304
    
    
    
    .282SPA
    
    
    .676
    
    
    
    
    
    
    
    .353
    
    
    
    .149
    
    
    
    .224
    
    
    
    1.138
    
    
    
    
    
    
    
    .655
    
    
    
    .719
    
    
    
    .569
    
    
    
    .196
    
    
    
    
    
    
    
    .015
    
    
    
    .059
    
    
    
    .086Solids (total)
    
    
    1.247
    
    
    DAP
    
    
    .609
    
    
    
    .495
    
    
    
    .472
    
    
    
    .710
    
    
    DAP
    
    
    .495
    
    
    
    .477
    
    
    
    .575
    
    
    
    
    
    
    DAP
    
    
    
    
    
    
    
    
    
    
    MAP
    
    
    .372
    
    
    
    .413
    
    
    
    .525
    
    
    
    
    
    
    MAP
    
    
    .159
    
    
    
    .172
    
    
    
    .091
    
    
    
    
    
    
    MAP
    
    
    
    
    
    
    
    
    
    
    Total
    .981
    
    
    
    .908
    
    
    
    .997
    
    
    
    
    
    
    Total
    .654
    
    
    
    .649
    
    
    
    .666
    
    
    
    
    
        Total

    
    
    
    
    
    
    
    
    
 1
 
 EXPENSES AND OTHER INCOME
 Dollars (millions), except percentage amounts
    
    
    % Increase (Decrease)2006
    
    
    % of Sales
    
    
    2005
    
    
    % of Sales
    
    
    2004
    
    
    % of Sales
    
    
    2006
    
    
    2005Selling and administrative
    
    $
    158.4
    
    
    
    4
    
    
    $
    144.5
    
    
    
    4
    
    
    $
    130.6
    
    
    
    4
    
    
    
    10
    
    
    
    11Provincial mining and other
taxes
    
    66.5
    
    
    
    2
    
    
    
    137.2
    
    
    
    4
    
    
    
    92.6
    
    
    
    3
    
    
    
    (52
    )
    
    
    48Foreign exchange gain (loss)
    
    4.4
    
    
    
    
    
    
    
    (12.5
    )
    
    
    
    
    
    
    (19.7
    )
    
    
    (1
    )
    
    
    n/m
    
    
    
    (37
    )Other income
    
    
    94.0
    
    
    
    2
    
    
    
    61.8
    
    
    
    2
    
    
    
    75.8
    
    
    
    2
    
    
    
    52
    
    
    
    (18
    )Interest expense
    
    
    85.6
    
    
    
    2
    
    
    
    82.3
    
    
    
    2
    
    
    
    84.0
    
    
    
    3
    
    
    
    4
    
    
    
    (2
    )Income tax expense
    
    
    158.1
    
    
    
    4
    
    
    
    267.4
    
    
    
    7
    
    
    
    131.7
    
    
    
    4
    
    
    
    (41
    )
    
    
    103
  2006 vs 2005




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##### 



34 POTASHCORP 2006 FINANCIAL REVIEW / MD&A » EXPENSES & OTHER INCOME
  
    
    During 2006, we reduced our consolidated effective income tax rate from 33 percent to 30
percent, primarily due to two factors that occurred during the year. First, the Province of
Saskatchewan enacted changes to the corporate income tax, reducing the rate from 17 percent to
12 percent over the next three years. The impact of this change, reducing our future income
tax liability by $21.9 million, was also recognized during the year. Second, we revised our
estimated allocation of annual income before income taxes by jurisdiction as a result of a
decrease in expected potash operating income in Canada.
    
    During 2006, the Government of Canada enacted changes to the federal corporate income tax and
the corporate surtax. The corporate income tax rate will be reduced from 21 percent to 19
percent over the next four years and the corporate surtax will be reduced from 1.12 percent to
nil in 2008. The $22.9-million impact of this change that reduced our future income tax
liability was recognized during 2006.
    
    Income tax refunds totalling $34.1 million were recorded, relating to a recent Canadian
appeal court decision (pertaining to a uranium producer) which affirmed the deductibility of
the Saskatchewan capital tax resource surcharge.
 2005 vs 2004
     IMPACT OF FOREIGN EXCHANGE
  
 Impact on net income
    
    2006
    
    
    2005Dollars (millions), except per-share amountsOperating income increase before income taxes
    
    $
    8.6
    
    
    $
    12.1Net income increase
    
    
    6.0
    
    
    
    8.1Diluted net income per share increase
    
    
    0.06
    
    
    
    0.07




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##### 



POTASHCORP 2006 FINANCIAL REVIEW / MD&A » EXPENSES & OTHER INCOME / QUARTERLY RESULTS 35
  
 
   
 QUARTERLY RESULTS AND REVIEW OF FOURTH-QUARTER PERFORMANCE
  (unaudited, in millions of US dollars except per-share amounts)2006
    
    
    2005Q1
    
    
    Q2
    
    
    Q3
    
    
    Q4
    
    
    Total
    
    
    Q1
    
    
    Q2
    
    
    Q3
    
    
    Q4
    
    
    TotalSales
    
    $
    861.6
    
    
    $
    928.7
    
    
    $
    953.5
    
    
    $
    1,022.9
    
    
    $
    3,766.7
    
    
    $
    921.4
    
    
    $
    1,057.3
    
    
    $
    938.0
    
    
    $
    930.5
    
    
    $
    3,847.2Less: Freight
    
    
    54.9
    
    
    
    62.3
    
    
    
    65.6
    
    
    
    73.0
    
    
    
    255.8
    
    
    
    67.2
    
    
    
    67.4
    
    
    
    59.9
    
    
    
    55.2
    
    
    
    249.7Transportation & distribution
    
    
    31.2
    
    
    
    35.8
    
    
    
    37.6
    
    
    
    29.5
    
    
    
    134.1
    
    
    
    28.9
    
    
    
    32.1
    
    
    
    29.8
    
    
    
    31.1
    
    
    
    121.9Cost of goods sold
    
    
    572.0
    
    
    
    577.2
    
    
    
    604.5
    
    
    
    621.1
    
    
    
    2,374.8
    
    
    
    566.8
    
    
    
    613.0
    
    
    
    568.8
    
    
    
    602.0
    
    
    
    2,350.6Gross margin
    
    
    203.5
    
    
    
    253.4
    
    
    
    245.8
    
    
    
    299.3
    
    
    
    1,002.0
    
    
    
    258.5
    
    
    
    344.8
    
    
    
    279.5
    
    
    
    242.2
    
    
    
    1,125.0Operating income
    
    
    192.1
    
    
    
    194.7
    
    
    
    223.2
    
    
    
    265.5
    
    
    
    875.5
    
    
    
    216.7
    
    
    
    265.7
    
    
    
    214.9
    
    
    
    195.3
    
    
    
    892.6Net income
    
    
    125.5
    
    
    
    175.1
    
    
    
    145.2
    
    
    
    186.0
    
    
    
    631.8
    
    
    
    131.3
    
    
    
    164.2
    
    
    
    130.3
    
    
    
    117.1
    
    
    
    542.9Net income per share basic
    
    
    1.21
    
    
    
    1.69
    
    
    
    1.40
    
    
    
    1.78
    
    
    
    6.08
    
    
    
    1.18
    
    
    
    1.50
    
    
    
    1.20
    
    
    
    1.11
    
    
    
    5.00Net income per share diluted
    
    
    1.19
    
    
    
    1.65
    
    
    
    1.37
    
    
    
    1.74
    
    
    
    5.95
    
    
    
    1.15
    
    
    
    1.46
    
    
    
    1.17
    
    
    
    1.09
    
    
    
    4.89Potash gross margin
    
    
    90.8
    
    
    
    132.8
    
    
    
    153.6
    
    
    
    183.9
    
    
    
    561.1
    
    
    
    176.2
    
    
    
    223.3
    
    
    
    167.6
    
    
    
    140.3
    
    
    
    707.4Nitrogen gross margin
    
    
    79.4
    
    
    
    91.7
    
    
    
    62.4
    
    
    
    82.1
    
    
    
    315.6
    
    
    
    65.3
    
    
    
    99.4
    
    
    
    79.7
    
    
    
    74.3
    
    
    
    318.7Phosphate gross
margin
    
    
    33.3
    
    
    
    28.9
    
    
    
    29.8
    
    
    
    33.3
    
    
    
    125.3
    
    
    
    17.0
    
    
    
    22.1
    
    
    
    32.2
    
    
    
    27.6
    
    
    
    98.9
  
    
    Potash gross margin of $183.9 million was 31 percent above the $140.3 million in the fourth
quarter of 2005. Gross margin as a percentage of net sales rebounded to 57 percent during the
quarter, up from 53 percent in the two trailing quarters and 47 percent in the first quarter.
Our total potash sales volumes for the fourth quarter reached 2.2 million tonnes as offshore
sales volumes grew to 1.3 million tonnes from 1.1 million tonnes in fourth-quarter 2005.
Canpotex shipped 2.0 million tonnes during the fourth quarter, up from 1.8 million tonnes in
the same quarter last year as quarter-over-quarter shipments to China and India rose by 41
percent and 4 percent, respectively. In North America, strong fall application and some dealer
restocking drove up quarter-over-quarter sales volumes by 58 percent to 0.85 million tonnes.
In response to increased demand in the latter part of the year, we produced a record 2.4
million tonnes during the fourth quarter. Compared to the fourth quarter of 2005, potash
production costs were higher due to the stronger average Canadian dollar exchange rate and rising prices for petroleum-
 based supplies and
repair services, offset by lower natural gas costs.
 
    
    Nitrogen gross margin of $82.1 million was a fourth-quarter record and the third
highest in our history, 10 percent greater than the $74.3-million gross margin in the same
quarter of 2005. Fourth-quarter realized prices for ammonia and urea declined by 20
percent and 17 percent, respectively, from the peaks reached in the fourth quarter of
2005. Nitrogen production was up 8 percent in the fourth quarter of 2006 following the
first-half completion of debottlenecking projects in Trinidad, enabling a 10-percent
increase in ammonia sales volumes in the quarter. Trinidad contributed $48.1 million of
gross margin for the quarter, representing 59 percent of segment gross margin. Industrial
sales volumes were up 8 percent from last years fourth quarter and represented 68 percent of total nitrogen sales, while fertilizer tonnes were
down 13 percent from the same quarter of 2005. Urea sales volumes were up 9 percent quarter
over quarter because of strong industrial sales.
    
    Phosphate gross margin grew to $33.3 million from $27.6 million in the fourth quarter
of 2005, achieving a level it had previously reached only once since 1999. Industrial
products contributed $8.3 million in gross margin and feed products contributed $13.8
million. Liquid fertilizer sales volumes were 28 percent higher than in the same quarter
last year, driven by strong




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##### 



36 POTASHCORP 2006 FINANCIAL REVIEW / MD&A » QUARTERLY RESULTS / KEY EARNINGS SENSITIVITIES
  Offshore sales, mainly to India. Solid fertilizer sales volumes increased by 26
percent compared to fourth-quarter 2005 due to higher sales in North America (driven by
strong demand after a late harvest) and offshore (driven by significantly higher demand in
Pakistan and Latin America). Stronger competitive pressures, however, resulted in
fourth-quarter prices for solid phosphate fertilizers falling 5 percent from the same
period last year, though liquid fertilizer prices were up slightly due to strong offshore
sales demand. Feed prices rose 12 percent quarter over quarter due to a tighter
supply/demand balance. These increases were partially offset by higher input and production
costs.
    
    Selling and administrative expenses increased $15.3 million from last years fourth
quarter, primarily due to higher expenses associated with certain of our performance-based
compensation plans, which are linked, in part, to the companys share price performance.
 
    
    The Canadian dollar weakened against the US dollar during the fourth quarter of 2006
and the translation of Canadian-dollar denominated monthly items
contributed to $13.6 million of foreign exchange gains during the period. This compared to losses of $0.1
million during last years fourth quarter when the Canadian dollar strengthened
marginally.
    
    Other income was $14.2 million higher than in the fourth quarter of 2005 as we
realized a higher share of earnings from our equity investees and gains on sale of
property, plant and equipment compared to losses during the fourth quarter of 2005.
    
    Our consolidated reported income tax rate for the quarter ended December 31, 2006 was
approximately 25 percent, compared to 33 percent during the same period in 2005. The
reduction was due to a change in the companys effective rate from 33 percent to 30
percent during 2006 and the recording of income tax refunds in fourth-quarter 2006.
   
 KEY EARNINGS SENSITIVITIES
 
   EffectINPUT COST SENSITIVITIES
    
    on EPSNYMEX gas price
    
    Nitrogen
    
    + 0.07increases by
$1/MMBtu
    
    Potash
    
     0.05Sulfur changes by
$5/long ton
    
    Phosphate
    
    ± 0.07Canadian to US
dollar strengthens
by $0.01
    
    Canadian operating
expenses net of
provincial taxes
    
     0.04Translation gain/loss
    
     0.03
 EffectPRICE AND VOLUME SENSITIVITIES
    
    on EPSPrice
    
    Potash changes by $5/tonne
    
    ± 0.22DAP/MAP changes by $5/tonne
    
    ± 0.05Ammonia increases by $10/tonne Nitrogen
    
    + 0.05 Phosphate
    
     0.02Urea changes by $10/tonne
    
    ± 0.08Volume
    
    Potash changes by 100,000 tonnes
    
    ± 0.06Nitrogen changes by 50,000 N tonnes
    
    ± 0.06Phosphate changes by 50,000 P2O5 tonnes
    
    ± 0.07
     INDICATORS TO WATCH IN 2007
 FERTILIZER
 
    
    Weather and global acreage planted
    
    Ethanol and biodiesel developments
    
    US corn acres
    
    US dollar exchange rates with global currencies
    
    Global crop prices
    
    Ocean freight rates
    
    Prices for natural gas, ammonia and sulfur
    
    EU and US nitrogen curtailments
    
    Brazil  weather, soybean prices, credit policy, soybean acres planted
    
    Chinas agricultural taxes, subsidies, corn trade, soybean imports
    
    US progress on new Farm Bill 2007
 FEED AND INDUSTRIAL
 
    
    Health of US and world economies
    
    Effect of livestock-based disease restrictions on world trade  such as Avian flu, BSE, F&MD
    
    Potential tightening of restrictions on the use of meat and bone meal in animal feeds
    
    Impact of
residual grain from ethanol production on US feed phosphate consumption
    
    Consumer spending, housing starts, household improvements, and vehicle production and sales




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POTASHCORP 2006 FINANCIAL REVIEW / MD&A » 2007 OUTLOOK 37
 
 2007 OUTLOOK
 
  1
    
    Economy: The world economy is expected to maintain its strong momentum in 2007, with
the International Monetary Fund projecting growth at 4.9 percent. The fast-growing Asian
economies, led by China and India, should again be major growth drivers, as people
continue to improve their lifestyles through better diets and increased use of products
from industry.
 2
    
    Food: The higher incomes in developing countries are expected to permit greater
expenditures on food products, with increased protein intake from animal products being
the top priority. Chinas Ministry of Agriculture predicts that national consumption of
pork and eggs will increase significantly by 2030, beef and poultry will double and dairy
consumption could more than quadruple.
 in ethanol production, as much as 50 percent more by the end of the decade, according to
USDA. Malaysia and Indonesia are projected to plant more oil palm for use in producing biodiesel,
allocating 40 percent of their combined output to it. Europe will likely be a major destination
for this substitute for petroleum-based diesel, so it can meet its transportation sector target
of 5.7 percent biofuels by 2010.
 4
    
    Crop Inventories: In 2007, global inventories of the major crops are expected to continue to
decline, driven by increasing consumption for food, feed, fiber and biofuels and the lack of
adequate balanced fertilization in many countries.
    
 
    3
    
    Biofuels: Rising global oil demand for transportation and other uses is projected by
Fertecon to keep oil prices above $50 per barrel in 2007 and between $45 and $65 for the rest
of the decade. This is expected to accelerate the biofuels revolution. US ethanol production
is expected to consume more than 20 percent of the crop in 2007, rising to 30 percent by 2010.
In Brazil, more land is expected to be planted to sugar cane for use
 5
    
    Crop Prices: Higher prices are expected for the major large-acreage crops, driven for
corn and wheat by the decline in global inventories to the critical point at which market
signals encourage growers to increase production. Prices for crops such as soybeans are
projected to strengthen because of competition from corn and wheat for planted acreage.




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38 POTASHCORP 2006 FINANCIAL REVIEW / MD&A » 2007 OUTLOOK
  6
    
    Fertilizer: Farmers around the world are expected to respond to higher crop prices by
planting more of the high fertilizer-consuming crops used in biofuels production, such as
corn, sugar cane and oil palm. Developing countries seeking to boost their low soil fertility
levels are expected to apply more fertilizer. These factors are projected to drive fertilizer
sales, with forecast growth of 10 percent in demand for potash, 5.8 percent for phosphate
(phosphoric acid) and 3.4 percent for nitrogen, according to industry consultants.
 
 7
    
    Potash: Global potash sales are projected by industry consultants to increase by 10
percent in 2007 as countries refill the potash pipelines depleted during the extended 2006
price negotiations with China and India. Three-percent annual growth is projected for 2008
and beyond, although demand for crops to produce biofuels could push that up to 4 percent.In 2007, China and India are expected to increase imports substantially to replenish their
inventories and meet rising consumption. Strengthening soybean prices are expected to boost
Brazils imports. US sales are projected to increase sharply to restock field inventories
and supply nutrients for the additional acres planted to corn.The flooding and subsequent closure of Berezniki 1 in late 2006 forced Uralkali to reduce
its 2007 production plan by 1.2 million tonnes. As a result, more Canadian potash should be
required to meet world needs.8
    
    Natural Gas: Natural gas prices strengthened with the onset of the 2006/2007 winter,
and the futures market projects that they will remain between $7.00 and $9.50/MMBtu from
2007 to 2010. In regions with limited natural gas resources and growing consumption 
including several developing countries, the US and the EU  the tight supply/demand
balance has increased gas prices. This is projected to accelerate development of a global
liquefied natural gas (LNG) infrastructure, pushing up gas prices in regions where they
are now low and making the
 economics of producing nitrogen products there and transporting them to high-cost gas regions less
attractive.
 
 9
    
    Nitrogen: Nitrogen demand is expected to surge in 2007 in response to higher crop prices
and growing biofuel production. Despite new capacity coming on stream, demand growth is
expected to exceed supply throughout the year, underpinning prices.
 
 10
    
    Phosphate: As new global capacity displaces US imports, the long decline in the US share
of the global DAP market is projected to continue, falling to one-third by the end of the
decade. Recent US phosphate shutdowns are projected to maintain relatively strong markets
through 2008, but new capacity in China and Saudi Arabia near the end of the decade may soften
markets by 2010. Increases in domestic production in India, the worlds largest DAP importer,
in 2007 are expected to keep pace with growth in consumption, holding imports near the 2006
level of 2.8 million tonnes.




---



##### 



POTASHCORP 2006 FINANCIAL REVIEW / MD&A » FINANCIAL CONDITION REVIEW / LIQUIDITY & CAPITAL RESOURCES 39
 
 FINANCIAL CONDITION REVIEW
 
  
 $297.5 million
   
 LIQUIDITY AND CAPITAL RESOURCES
 
  
 CASH REQUIREMENTS
    Contractual Obligations and Other CommitmentsPayments Due by Period  Dollars (millions)Total
    
    
    Within 1 year
    
    
    1 to 3 years
    
    
    3 to 5 years
    
    
    Over 5 yearsLong-term debt
    
    $
    1,757.5
    
    
    $
    400.4
    
    
    $
    0.5
    
    
    $
    600.7
    
    
    $
    755.9Estimated interest payments on long-term debt
    
    
    599.2
    
    
    
    102.8
    
    
    
    177.2
    
    
    
    153.8
    
    
    
    165.4Operating leases
    
    
    646.7
    
    
    
    79.3
    
    
    
    145.0
    
    
    
    130.4
    
    
    
    292.0Purchase obligations
    
    
    831.1
    
    
    
    143.0
    
    
    
    208.8
    
    
    
    140.5
    
    
    
    338.8Other commitments
    
    
    74.2
    
    
    
    21.5
    
    
    
    24.1
    
    
    
    10.0
    
    
    
    18.6Other long-term liabilities
    
    
    953.1
    
    
    
    33.7
    
    
    
    76.7
    
    
    
    60.8
    
    
    
    781.9Total
    
    $
    4,861.8
    
    
    $
    780.7
    
    
    $
    632.3
    
    
    $
    1,096.2
    
    
    $
    2,352.6




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##### 



40 POTASHCORP 2006 FINANCIAL REVIEW / MD&A » LIQUIDITY & CAPITAL RESOURCES
  Long-Term Debt
    Operating Leases
  Purchase Obligations
 Other Commitments
  Other Long-Term Liabilities
   Capital Expenditures
  SOURCES AND USES OF CASH
   Dollars(millions) except percentage amounts% Increase(Decrease)2006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005Cash provided
by operating activities
    
    $
    696.8
    
    
    $
    865.1
    
    
    $
    658.3
    
    
    
    (19
    )
    
    
    31Cash used in
investing activities
    
    $
    (839.7
    )
    
    $
    (555.3
    )
    
    $
    (225.5
    )
    
    
    51
    
    
    
    146Cash provided by (used in)
financing activities
    
    $
    374.7
    
    
    $
    (674.8
    )
    
    $
    21.4
    
    
    
    n/m
    
    
    
    n/mIncrease (decrease) in
cash and cash
equivalents
    
    $
    231.8
    
    
    $
    (365.0
    )
    
    $
    454.2
    
    
    
    n/m
    
    
    
    n/m
  
 Dollars(millions) except ratio and percentage amounts% IncreaseDecember 31
    
    
    December 31
    
    
    December 31
    
    
    (Decrease)2006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005Current assets
    
    $
    1,310.2
    
    
    $
    1,110.8
    
    
    $
    1,243.6
    
    
    
    18
    
    
    
    (11
    )Current liabilities
    
    $
    (1,103.5
    )
    
    $
    (1,096.1
    )
    
    $
    (703.7
    )
    
    
    1
    
    
    
    56Working capital
    
    $
    206.7
    
    
    $
    14.7
    
    
    $
    539.9
    
    
    
    n/m
    
    
    
    (97
    )Current ratio
    
    
    1.19
    
    
    
    1.01
    
    
    
    1.77
    
    
    
    18
    
    
    
    (43
    )




---



##### 



POTASHCORP 2006 FINANCIAL REVIEW / MD&A CAPITAL STRUCTURE & MANAGEMENT 41
  $238.1-million
  
    
    During 2006, we acquired additional interests in Sinofert, APC and SQM, for which cash paid
totalled $352.5 million. The Sinofert purchase price was financed by short-term debt; the
purchase prices of APC and SQM were financed by cash on hand. In 2005, we acquired 1 million additional
shares in APC for $18.6 million,
 21 million additional shares in ICL for $74.9 million and a
10-percent interest in Sinofert for $97.4 million.
    
    Our spending on property, plant and equipment increased by $125.9 million as compared to last
year, largely due to major capital expansion projects in potash. In total, we invested $508.6
million, or 14 percent of sales (2005  $382.7 million, or 10 percent of sales) in capital
projects, which were financed by our short-term credit facilities. Approximately 58 percent
(2005  43 percent) of our consolidated capital expenditures related to the potash segment.
   
 CAPITAL STRUCTURE AND MANAGEMENT
 
  Capital Structure
 December 31
    
    
    December 312006
    
    
    2005Short-term debt
    
    $
    157.9
    
    
    $
    252.2Current portion of long-term debt
    
    
    400.4
    
    
    
    1.2Long-term debt
    
    
    1,357.1
    
    
    
    1,257.6Total debt
    
    
    1,915.4
    
    
    
    1,511.0Shareholders equity
    
    $
    2,780.3
    
    
    $
    2,132.5Total debt to capital
    
    
    41%
    
    
    
    41%Fixed rate debt as a percentage of
total indebtedness
    
    
    91%
    
    
    
    83%Common shares outstanding
    
    
    104,801,049
    
    
    
    103,593,792Stock options outstanding
    
    
    4,768,548
    
    
    
    5,081,756Dividend payout ratio
    
    
    10%
    
    
    
    12%
  Principal Debt Instruments
 Total
    
    
    Amount
    
    
    Amount
    
    
    AmountAmount
    
    
    Outstanding
    
    
    Committed
    
    
    AvailableSyndicated credit facility
    
    $
    750.0
    
    
    $
    
    
    
    $
    157.9
    
    
    $
    592.1Line of credit
    
    
    75.0
    
    
    
    
    
    
    
    17.3
    
    
    
    57.7Commercial paper
    
    
    750.0
    
    
    
    157.9
    
    
    
    
    
    
    
    592.1US shelf registrations
    
    
    2,000.0
    
    
    
    1,750.0
    
    
    
    
    
    
    
    250.0




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##### 



42 POTASHCORP 2006 FINANCIAL REVIEW / MD&A CAPITAL STRUCTURE & MANAGEMENT
  OUTSTANDING SHARE DATA
    OFF-BALANCE SHEET ARRANGEMENTS
  Guarantee Contracts




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##### 



POTASHCORP
2006 FINANCIAL REVIEW / MD&A MARKET RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS 43
  Derivative Instruments
 Long-Term Fixed Price Contracts
   
 MARKET RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS
 
  COMMODITY RISK
 INTEREST RATE RISK




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##### 



44 POTASHCORP 2006 FINANCIAL REVIEW / MD&A RELATED PARTY TRANSACTIONS / CRITICAL ACCOUNTING ESTIMATES
  FOREIGN EXCHANGE RISK
 
   
 RELATED PARTY TRANSACTIONS
 
  
 
   
 CRITICAL ACCOUNTING ESTIMATES
 
  VARIABLE INTEREST ENTITIES
 PENSION AND OTHER POST-RETIREMENT COSTS




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##### 



POTASHCORP
2006 FINANCIAL REVIEW / MD&A CRITICAL ACCOUNTING ESTIMATES 45
  Impact of a 0.5% Change in Key Assumptions
 Pension Plans
    
    
    Other PlansObligation
    
    
    Expense
    
    
    Obligation
    
    
    ExpenseDiscount rateDecrease in assumption
    $
    42.7
    
    
    $
    4.2
    
    
    $
    19.8
    
    
    $
    2.1Increase
in  assumption
    (38.9
    )
    
    
    (3.9
    )
    
    
    (18.3
    )
    
    
    (1.9
    )Expected long-term rate of returnDecrease in assumption
    n/a
    
    
    
    2.6
    
    
    
    n/a
    
    
    
    n/aIncrease in assumption
    n/a
    
    
    
    (2.6
    )
    
    
    n/a
    
    
    
    n/aRate of compensation increaseDecrease in assumption
    (8.3
    )
    
    
    (1.8
    )
    
    
    n/a
    
    
    
    n/aIncrease in assumption
    8.8
    
    
    
    1.8
    
    
    
    n/a
    
    
    
    n/aMedical trend rateDecrease in assumption
    n/a
    
    
    
    n/a
    
    
    
    (15.0
    )
    
    
    (2.6
    )Increase in assumption
    n/a
    
    
    
    n/a
    
    
    
    17.7
    
    
    
    2.9
 ASSET
RETIREMENT OBLIGATIONS AND OTHER
ENVIRONMENTAL COSTS
    INCOME TAXES






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##### 



46 POTASHCORP 2006 FINANCIAL REVIEW / MD&A » CRITICAL ACCOUNTING ESTIMATES
  ASSET IMPAIRMENT
 STOCK-BASED COMPENSATION
   DEPRECIATION AND AMORTIZATION




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##### 



POTASHCORP
2006 FINANCIAL REVIEW / MD&A » RECENT ACCOUNTING CHANGES 47
  
 
   
 RECENT ACCOUNTING CHANGES AND EFFECTIVE DATES
 
  2006
 2007, 2008




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##### 



48 POTASHCORP 2006 FINANCIAL REVIEW / MD&A » FORWARD-LOOKING STATEMENTS
  
 
   
 FORWARD-LOOKING STATEMENTS




---



##### 



POTASHCORP 2006 FINANCIAL REVIEW / MD&A » 11 YEAR
REPORT 49
 11 YEAR REPORT
  FINANCIAL DATA
 2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999
    
    
    1998
    
    
    1997
    1
    
    1996SalesPotash
    
    
    1,227.5
    
    
    
    1,341.1
    
    
    
    1,056.1
    
    
    
    758.7
    
    
    
    669.0
    
    
    
    655.2
    
    
    
    710.3
    
    
    
    688.6
    
    
    
    663.3
    
    
    
    644.0
    
    
    
    521.1Nitrogen
    
    
    1,284.1
    
    
    
    1,368.8
    
    
    
    1,210.4
    
    
    
    1,156.4
    
    
    
    841.4
    
    
    
    993.5
    
    
    
    964.5
    
    
    
    744.7
    
    
    
    844.2
    
    
    
    939.3
    
    
    
    111.3Phosphate
    
    
    1,255.1
    
    
    
    1,137.3
    
    
    
    977.9
    
    
    
    883.9
    
    
    
    714.0
    
    
    
    732.1
    
    
    
    868.1
    
    
    
    922.3
    
    
    
    1,099.5
    
    
    
    1,036.7
    
    
    
    972.5Total sales
    
    
    3,766.7
    
    
    
    3,847.2
    
    
    
    3,244.4
    
    
    
    2,799.0
    
    
    
    2,224.4
    
    
    
    2,380.8
    
    
    
    2,542.9
    
    
    
    2,355.6
    
    
    
    2,607.0
    
    
    
    2,620.0
    
    
    
    1,604.95-year CAGR 3
    
    
    9.6%10-year CAGR 3
    
    
    8.9%Gross marginPotash
    
    
    561.1
    
    
    
    707.4
    
    
    
    422.8
    
    
    
    203.7
    
    
    
    218.0
    
    
    
    248.1
    
    
    
    307.4
    
    
    
    304.2
    
    
    
    319.2
    
    
    
    261.4
    
    
    
    193.0Nitrogen
    
    
    315.6
    
    
    
    318.7
    
    
    
    242.8
    
    
    
    193.2
    
    
    
    47.4
    
    
    
    94.7
    
    
    
    104.7
    
    
    
    (21.4
    )
    
    
    64.8
    
    
    
    133.0
    
    
    
    2.1Phosphate
    
    
    125.3
    
    
    
    98.9
    
    
    
    15.8
    
    
    
    (16.5
    )
    
    
    41.9
    
    
    
    64.5
    
    
    
    76.8
    
    
    
    130.5
    
    
    
    230.1
    
    
    
    196.6
    
    
    
    196.2Total gross margin
    
    
    1,002.0
    
    
    
    1,125.0
    
    
    
    681.4
    
    
    
    380.4
    
    
    
    307.3
    
    
    
    407.3
    
    
    
    488.9
    
    
    
    413.3
    
    
    
    614.1
    
    
    
    591.0
    
    
    
    391.35-year CAGR 3
    
    
    19.7%10-year CAGR 3
    
    
    9.9%Depreciation and amortizationPotash
    
    
    58.3
    
    
    
    64.5
    
    
    
    66.4
    
    
    
    52.4
    
    
    
    46.3
    
    
    
    34.1
    
    
    
    40.9
    
    
    
    37.2
    
    
    
    36.2
    
    
    
    39.6
    
    
    
    38.5Nitrogen
    
    
    77.6
    
    
    
    72.0
    
    
    
    79.7
    
    
    
    86.4
    
    
    
    88.0
    
    
    
    72.8
    
    
    
    66.1
    
    
    
    83.5
    
    
    
    86.7
    
    
    
    69.0
    
    
    
    Phosphate
    
    
    94.6
    
    
    
    95.6
    
    
    
    84.4
    
    
    
    78.9
    
    
    
    76.8
    
    
    
    72.0
    
    
    
    68.1
    
    
    
    61.8
    
    
    
    59.1
    
    
    
    55.1
    
    
    
    51.6Other
    
    
    11.9
    
    
    
    10.3
    
    
    
    9.5
    
    
    
    9.7
    
    
    
    8.0
    
    
    
    6.8
    
    
    
    11.9
    
    
    
    8.6
    
    
    
    8.9
    
    
    
    6.3
    
    
    
    Total depreciation and amortization
    
    
    242.4
    
    
    
    242.4
    
    
    
    240.0
    
    
    
    227.4
    
    
    
    219.1
    
    
    
    185.7
    
    
    
    187.0
    
    
    
    191.1
    
    
    
    190.9
    
    
    
    170.0
    
    
    
    90.1Operating income (loss)
    
    
    875.5
    
    
    
    892.6
    
    
    
    514.3
    
    
    
    (55.6
    )
    
    
    166.9
    
    
    
    269.7
    
    
    
    326.8
    
    
    
    (353.0
    )
    
    
    442.3
    
    
    
    442.0
    
    
    
    297.4Net income (loss)* 2
    
    
    631.8
    
    
    
    542.9
    
    
    
    298.6
    
    
    
    (126.3
    )
    
    
    53.6
    
    
    
    121.2
    
    
    
    198.0
    
    
    
    (412.0
    )
    
    
    261.0
    
    
    
    297.1
    
    
    
    209.05-year CAGR 3
    
    
    39.1%10-year CAGR 3
    
    
    11.7%Net income (loss) per share 
basic 5
    
    
    6.08
    
    
    
    5.00
    
    
    
    2.77
    
    
    
    (1.21
    )
    
    
    0.52
    
    
    
    1.17
    
    
    
    1.89
    
    
    
    (3.80
    )
    
    
    2.41
    
    
    
    2.84
    
    
    
    2.29Net income (loss) per
share  diluted 5
    
    
    5.95
    
    
    
    4.89
    
    
    
    2.70
    
    
    
    (1.21
    )
    
    
    0.51
    
    
    
    1.16
    
    
    
    1.88
    
    
    
    (3.80
    )
    
    
    2.39
    
    
    
    2.81
    
    
    
    2.27Dividends per share
    
    
    0.60
    
    
    
    0.60
    
    
    
    0.55
    
    
    
    0.50
    
    
    
    0.50
    
    
    
    0.50
    
    
    
    0.50
    
    
    
    0.50
    
    
    
    0.48
    
    
    
    0.52
    
    
    
    0.53Cash provided by operating activities
    
    
    696.8
    
    
    
    865.1
    
    
    
    658.3
    
    
    
    385.5
    
    
    
    316.4
    
    
    
    75.7
    
    
    
    480.4
    
    
    
    343.6
    
    
    
    578.0
    
    
    
    467.8
    
    
    
    296.2Working capital
    
    
    206.7
    
    
    
    14.7
    
    
    
    539.9
    
    
    
    176.1
    
    
    
    8.6
    
    
    
    47.1
    
    
    
    (148.7
    )
    
    
    (104.8
    )
    
    
    329.2
    
    
    
    281.7
    
    
    
    278.8Total assets
    
    
    6,217.0
    
    
    
    5,357.9
    
    
    
    5,126.8
    
    
    
    4,567.3
    
    
    
    4,685.6
    
    
    
    4,597.3
    
    
    
    4,145.7
    
    
    
    3,916.8
    
    
    
    4,534.3
    
    
    
    4,427.6
    
    
    
    2,494.4Long-term debt
    
    
    1,357.1
    
    
    
    1,257.6
    
    
    
    1,258.6
    
    
    
    1,268.6
    
    
    
    1,019.9
    
    
    
    1,013.7
    
    
    
    413.7
    
    
    
    437.0
    
    
    
    933.3
    
    
    
    1,130.0
    
    
    
    620.0Shareholders equity
    
    
    2,780.3
    
    
    
    2,132.5
    
    
    
    2,385.6
    
    
    
    1,973.8
    
    
    
    2,092.5
    
    
    
    2,086.5
    
    
    
    2,012.1
    
    
    
    1,962.4
    
    
    
    2,453.8
    
    
    
    2,227.9
    
    
    
    1,405.5Shares outstanding at the end
of the year (thousands) 4,5
    
    
    104,801
    
    
    
    103,594
    
    
    
    110,631
    
    
    
    106,224
    
    
    
    104,156
    
    
    
    103,904
    
    
    
    103,682
    
    
    
    107,388
    
    
    
    108,488
    
    
    
    107,792
    
    
    
    91,164
 OPERATING DATA
 2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999
    
    
    1998
    
    
    1997
    1
    
    1996Employees at year-end (actual #)
    
    
    4,871
    
    
    
    4,879
    
    
    
    4,906
    
    
    
    4,904
    
    
    
    5,199
    
    
    
    4,997
    
    
    
    5,338
    
    
    
    5,498
    
    
    
    5,744
    
    
    
    5,751
    
    
    
    4,490Potash production (KCl) tonnage
    
    
    7,018
    
    
    
    8,816
    
    
    
    7,914
    
    
    
    7,094
    
    
    
    6,447
    
    
    
    6,128
    
    
    
    7,149
    
    
    
    6,388
    
    
    
    6,995
    
    
    
    6,483
    
    
    
    5,782Nitrogen production (N) tonnage
    
    
    2,579
    
    
    
    2,600
    
    
    
    2,558
    
    
    
    2,619
    
    
    
    2,990
    
    
    
    3,032
    
    
    
    2,706
    
    
    
    3,138
    
    
    
    3,121
    
    
    
    2,349
    
    
    
    Phosphate production (P2O5) tonnage
    
    
    2,108
    
    
    
    2,097
    
    
    
    1,962
    
    
    
    1,861
    
    
    
    1,512
    
    
    
    1,573
    
    
    
    2,042
    
    
    
    2,124
    
    
    
    2,363
    
    
    
    2,282
    
    
    
    2,096Potash sales  KCl tonnes
    
    
    7,196
    
    
    
    8,164
    
    
    
    8,276
    
    
    
    7,083
    
    
    
    6,327
    
    
    
    6,243
    
    
    
    6,912
    
    
    
    6,474
    
    
    
    6,283
    
    
    
    6,640
    
    
    
    5,612Nitrogen sales  product tonnes
    
    
    4,820
    
    
    
    5,220
    
    
    
    5,350
    
    
    
    6,080
    
    
    
    6,391
    
    
    
    6,381
    
    
    
    6,760
    
    
    
    6,705
    
    
    
    6,596
    
    
    
    5,851
    
    
    
    535Phosphate sales  product tonnes
    
    
    4,078
    
    
    
    3,971
    
    
    
    3,793
    
    
    
    3,647
    
    
    
    2,863
    
    
    
    3,045
    
    
    
    3,893
    
    
    
    4,016
    
    
    
    4,627
    
    
    
    4,434
    
    
    
    4,305
 1
    Data for 1997 and thereafter reflect the acquisition of Arcadian Corporation on
March 6, 1997.2
    There were no extraordinary items or discontinued operations in any of the accounting
periods.3
    Compound annual growth rate expressed as a percentage.4
    Common shares were repurchased in 2005, 2000 and 1999 in the amounts of 9.500 million,
2.070 million and 0.630 million, respectively.5
    All share and per-share data have been retroactively restated to reflect the stock
dividend of one common share for each share owned by shareholders of record at the close of
business on August 11, 2004. The stock dividend had the same effect as a two-for-one stock
split.
  Additional Information
 *
    The after-tax effects of asset impairment, plant shutdown, plant closure and office
consolidation charges and the gain on sale of long-term
investments are included (as applicable) in the data for 2006, 2004, 2003, 2000 and 1999 in the
amounts of $4.5, $(30.8), $203.2, $1.5 and $547.1, respectively.




---



##### 



50 POTASHCORP
2006 FINANCIAL REVIEW | FINANCIAL
PERFORMANCE INDICATORS
 FINANCIAL PERFORMANCE INDICATORS
  SUMMARY
 2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999
    
    
    1998
    
    
    1997
    
    
    1996Net income (loss)1
    
    
    631.8
    
    
    
    542.9
    
    
    
    298.6
    
    
    
    (126.3
    )
    
    
    53.6
    
    
    
    121.2
    
    
    
    198.0
    
    
    
    (412.0
    )
    
    
    261.0
    
    
    
    297.1
    
    
    
    209.0Net income (loss) share  diluted
    
    
    5.95
    
    
    
    4.89
    
    
    
    2.70
    
    
    
    (1.21
    )
    
    
    0.51
    
    
    
    1.16
    
    
    
    1.88
    
    
    
    (3.80
    )
    
    
    2.39
    
    
    
    2.81
    
    
    
    2.27EBITDA2
    
    
    1,117.9
    
    
    
    1,135.0
    
    
    
    754.3
    
    
    
    171.8
    
    
    
    386.0
    
    
    
    455.4
    
    
    
    513.8
    
    
    
    (161.9
    )
    
    
    633.2
    
    
    
    612.0
    
    
    
    387.5Cash flow prior to
working capital changes3
    
    
    940.8
    
    
    
    860.3
    
    
    
    538.3
    
    
    
    368.5
    
    
    
    289.2
    
    
    
    345.8
    
    
    
    405.1
    
    
    
    319.6
    
    
    
    556.2
    
    
    
    489.3
    
    
    
    321.7Cash provided by operating
activities
    
    
    696.8
    
    
    
    865.1
    
    
    
    658.3
    
    
    
    385.5
    
    
    
    316.4
    
    
    
    75.7
    
    
    
    480.4
    
    
    
    343.6
    
    
    
    578.0
    
    
    
    467.8
    
    
    
    296.2Return on assets
    
    
    10.2%
    
    
    
    10.1%
    
    
    
    5.8%
    
    
    
    (2.8%
    )
    
    
    1.1%
    
    
    
    2.6%
    
    
    
    4.8%
    
    
    
    (10.5%
    )
    
    
    5.8%
    
    
    
    6.7%
    
    
    
    8.4%Cash flow return4
    
    
    14.5%
    
    
    
    14.7%
    
    
    
    11.1%
    
    
    
    2.9%
    
    
    
    6.3%
    
    
    
    8.5%
    
    
    
    10.5%
    
    
    
    (3.7%
    )
    
    
    12.6%
    
    
    
    13.0%
    
    
    
    13.0%Weighted average cost of capital
    
    
    8.8%
    
    
    
    8.3%
    
    
    
    8.4%
    
    
    
    7.3%
    
    
    
    7.3%
    
    
    
    7.7%
    
    
    
    8.7%
    
    
    
    8.7%
    
    
    
    8.3%
    
    
    
    8.8%
    
    
    
    9.7%Total shareholder return
    
    
    79.6%
    
    
    
    (2.7%
    )
    
    
    93.4%
    
    
    
    37.5%
    
    
    
    5.2%
    
    
    
    (20.4%
    )
    
    
    64.6%
    
    
    
    (23.0%
    )
    
    
    (21.9%
    )
    
    
    (1.1%
    )
    
    
    21.4%Total debt to capital
    
    
    40.8%
    
    
    
    41.5%
    
    
    
    36.4%
    
    
    
    42.3%
    
    
    
    41.7%
    
    
    
    42.1%
    
    
    
    31.1%
    
    
    
    31.9%
    
    
    
    29.5%
    
    
    
    35.7%
    
    
    
    30.9%Net debt to capital5
    
    
    36.4%
    
    
    
    39.9%
    
    
    
    27.5%
    
    
    
    42.2%
    
    
    
    41.3%
    
    
    
    41.3%
    
    
    
    28.7%
    
    
    
    30.8%
    
    
    
    28.1%
    
    
    
    35.5%
    
    
    
    30.9%
 RECONCILIATIONS AND CALCULATIONS
 2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999
    
    
    1998
    
    
    1997
    
    
    1996Net income (loss)1
    
    
    631.8
    
    
    
    542.9
    
    
    
    298.6
    
    
    
    (126.3
    )
    
    
    53.6
    
    
    
    121.2
    
    
    
    198.0
    
    
    
    (412.0
    )
    
    
    261.0
    
    
    
    297.1
    
    
    
    209.0Income taxes
    
    
    158.1
    
    
    
    267.4
    
    
    
    131.7
    
    
    
    (20.6
    )
    
    
    30.2
    
    
    
    68.2
    
    
    
    67.2
    
    
    
    7.5
    
    
    
    117.5
    
    
    
    69.1
    
    
    
    43.7Interest expense
    
    
    85.6
    
    
    
    82.3
    
    
    
    84.0
    
    
    
    91.3
    
    
    
    83.1
    
    
    
    80.3
    
    
    
    61.6
    
    
    
    51.5
    
    
    
    63.8
    
    
    
    75.8
    
    
    
    44.7Depreciation and amortization
    
    
    242.4
    
    
    
    242.4
    
    
    
    240.0
    
    
    
    227.4
    
    
    
    219.1
    
    
    
    185.7
    
    
    
    187.0
    
    
    
    191.1
    
    
    
    190.9
    
    
    
    170.0
    
    
    
    90.1EBITDA2
    
    
    1,117.9
    
    
    
    1,135.0
    
    
    
    754.3
    
    
    
    171.8
    
    
    
    386.0
    
    
    
    455.4
    
    
    
    513.8
    
    
    
    (161.9
    )
    
    
    633.2
    
    
    
    612.0
    
    
    
    387.55-year CAGR7
    
    
    19.7%10-year CAGR7
    
    
    11.2%Cash flow prior to
working capital changes3
    
    
    940.8
    
    
    
    860.3
    
    
    
    538.3
    
    
    
    368.5
    
    
    
    289.2
    
    
    
    345.8
    
    
    
    405.1
    
    
    
    319.6
    
    
    
    556.2
    
    
    
    489.3
    
    
    
    321.7Accounts receivable
    
    
    11.0
    
    
    
    (107.6
    )
    
    
    (51.9
    )
    
    
    (39.5
    )
    
    
    (11.1
    )
    
    
    69.9
    
    
    
    (52.2
    )
    
    
    33.8
    
    
    
    48.8
    
    
    
    23.5
    
    
    
    (7.4
    )Inventories
    
    
    13.9
    
    
    
    (119.9
    )
    
    
    (10.5
    )
    
    
    11.8
    
    
    
    (18.2
    )
    
    
    (76.1
    )
    
    
    (27.4
    )
    
    
    (16.1
    )
    
    
    (7.9
    )
    
    
    19.9
    
    
    
    2.5Prepaid expenses and other
current assets
    
    
    0.2
    
    
    
    (5.8
    )
    
    
    (6.3
    )
    
    
    11.4
    
    
    
    (3.9
    )
    
    
    2.3
    
    
    
    (3.1
    )
    
    
    3.2
    
    
    
    (16.6
    )
    
    
    3.7
    
    
    
    (1.9
    )Accounts payable and
accrued charges
    
    
    (269.1
    )
    
    
    238.1
    
    
    
    188.7
    
    
    
    33.3
    
    
    
    60.4
    
    
    
    (266.2
    )
    
    
    158.0
    
    
    
    3.1
    
    
    
    (2.5
    )
    
    
    (68.6
    )
    
    
    (18.7
    )Changes in non-cash operating
working capital
    
    
    (244.0
    )
    
    
    4.8
    
    
    
    120.0
    
    
    
    17.0
    
    
    
    27.2
    
    
    
    (270.1
    )
    
    
    75.3
    
    
    
    24.0
    
    
    
    21.8
    
    
    
    (21.5
    )
    
    
    (25.5
    )Cash provided by operating
activities
    
    
    696.8
    
    
    
    865.1
    
    
    
    658.3
    
    
    
    385.5
    
    
    
    316.4
    
    
    
    75.7
    
    
    
    480.4
    
    
    
    343.6
    
    
    
    578.0
    
    
    
    467.8
    
    
    
    296.2Net income (loss)
    
    
    631.8
    
    
    
    542.9
    
    
    
    298.6
    
    
    
    (126.3
    )
    
    
    53.6
    
    
    
    121.2
    
    
    
    198.0
    
    
    
    (412.0
    )
    
    
    261.0
    
    
    
    297.1
    
    
    
    209.0Total assets
    
    
    6,217.0
    
    
    
    5,357.9
    
    
    
    5,126.8
    
    
    
    4,567.3
    
    
    
    4,685.6
    
    
    
    4,597.3
    
    
    
    4,145.7
    
    
    
    3,916.8
    
    
    
    4,534.3
    
    
    
    4,427.6
    
    
    
    2,494.4Return on assets
    
    
    10.2%
    
    
    
    10.1%
    
    
    
    5.8%
    
    
    
    (2.8%
    )
    
    
    1.1%
    
    
    
    2.6%
    
    
    
    4.8%
    
    
    
    (10.5%
    )
    
    
    5.8%
    
    
    
    6.7%
    
    
    
    8.4%Net income (loss)
    
    
    631.8
    
    
    
    542.9
    
    
    
    298.6
    
    
    
    (126.3
    )
    
    
    53.6
    
    
    
    121.2
    
    
    
    198.0
    
    
    
    (412.0
    )
    
    
    261.0
    
    
    
    297.1
    
    
    
    209.0Income taxes
    
    
    158.1
    
    
    
    267.4
    
    
    
    131.7
    
    
    
    (20.6
    )
    
    
    30.2
    
    
    
    68.2
    
    
    
    67.2
    
    
    
    7.5
    
    
    
    117.5
    
    
    
    69.1
    
    
    
    43.7Interest expense
    
    
    85.6
    
    
    
    82.3
    
    
    
    84.0
    
    
    
    91.3
    
    
    
    83.1
    
    
    
    80.3
    
    
    
    61.6
    
    
    
    51.5
    
    
    
    63.8
    
    
    
    75.8
    
    
    
    44.7Current income taxes
    
    
    (108.1
    )
    
    
    (227.3
    )
    
    
    (105.4
    )
    
    
    
    
    
    
    (24.2
    )
    
    
    (20.5
    )
    
    
    (32.6
    )
    
    
    (14.7
    )
    
    
    (19.4
    )
    
    
    (34.6
    )
    
    
    (20.0
    )Depreciation and amortization
    
    
    242.4
    
    
    
    242.4
    
    
    
    240.0
    
    
    
    227.4
    
    
    
    219.1
    
    
    
    185.7
    
    
    
    187.0
    
    
    
    191.1
    
    
    
    190.9
    
    
    
    170.0
    
    
    
    90.1Cash flow4
    
    
    1,009.8
    
    
    
    907.7
    
    
    
    648.9
    
    
    
    171.8
    
    
    
    361.8
    
    
    
    434.9
    
    
    
    481.2
    
    
    
    (176.6
    )
    
    
    613.8
    
    
    
    577.4
    
    
    
    367.5Total assets
    
    
    6,217.0
    
    
    
    5,357.9
    
    
    
    5,126.8
    
    
    
    4,567.3
    
    
    
    4,685.6
    
    
    
    4,597.3
    
    
    
    4,145.7
    
    
    
    3,916.8
    
    
    
    4,534.3
    
    
    
    4,427.6
    
    
    
    2,494.4Cash and cash equivalents
    
    
    (325.7
    )
    
    
    (93.9
    )
    
    
    (458.9
    )
    
    
    (4.7
    )
    
    
    (24.5
    )
    
    
    (45.3
    )
    
    
    (100.0
    )
    
    
    (44.0
    )
    
    
    (68.0
    )
    
    
    (8.8
    )
    
    
    Accumulated depreciation of
property, plant and equipment
    
    
    2,073.8
    
    
    
    1,927.7
    
    
    
    1,754.9
    
    
    
    1,576.2
    
    
    
    1,454.7
    
    
    
    1,274.3
    
    
    
    1,111.8
    
    
    
    951.0
    
    
    
    812.4
    
    
    
    662.0
    
    
    
    528.7Accumulated amortization of
other assets and intangible assets
    
    
    72.6
    
    
    
    66.4
    
    
    
    65.1
    
    
    
    70.1
    
    
    
    59.1
    
    
    
    42.0
    
    
    
    38.0
    
    
    
    42.0
    
    
    
    49.2
    
    
    
    17.7
    
    
    
    11.8Accumulated amortization of goodwill
    
    
    7.3
    
    
    
    7.3
    
    
    
    7.3
    
    
    
    7.3
    
    
    
    7.3
    
    
    
    7.3
    
    
    
    4.3
    
    
    
    1.4
    
    
    
    27.4
    
    
    
    12.7
    
    
    
    0.4Accounts payable and accrued charges
    
    
    (545.2
    )
    
    
    (842.7
    )
    
    
    (599.9
    )
    
    
    (380.3
    )
    
    
    (347.0
    )
    
    
    (271.4
    )
    
    
    (525.9
    )
    
    
    (349.1
    )
    
    
    (349.7
    )
    
    
    (348.1
    )
    
    
    (180.0
    )Adjusted assets
    
    
    7,499.8
    
    
    
    6,422.7
    
    
    
    5,895.3
    
    
    
    5,835.9
    
    
    
    5,835.2
    
    
    
    5,604.2
    
    
    
    4,673.9
    
    
    
    4,518.1
    
    
    
    5,005.6
    
    
    
    4,763.1
    
    
    
    2,855.3Average adjusted assets
    
    
    6,961.3
    
    
    
    6,159.0
    
    
    
    5,865.6
    
    
    
    5,835.6
    
    
    
    5,719.7
    
    
    
    5,139.1
    
    
    
    4,596.0
    
    
    
    4,761.9
    
    
    
    4,884.4
    
    
    
    4,447.0
    
    
    
    2,830.7Cash flow return4
    
    
    14.5%
    
    
    
    14.7%
    
    
    
    11.1%
    
    
    
    2.9%
    
    
    
    6.3%
    
    
    
    8.5%
    
    
    
    10.5%
    
    
    
    (3.7%
    )
    
    
    12.6%
    
    
    
    13.0%
    
    
    
    13.0%




---



##### 



POTASHCORP 2006 FINANCIAL REVIEW | FINANCIAL PERFORMANCE INDICATORS          51
 FINANCIAL PERFORMANCE INDICATORS
  RECONCILIATIONS AND CALCULATIONS (continued)
 2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999
    
    
    1998
    
    
    1997
    
    
    1996Weighted average cost of
capital
    
    
    8.8%
    
    
    
    8.3%
    
    
    
    8.4%
    
    
    
    7.3%
    
    
    
    7.3%
    
    
    
    7.7%
    
    
    
    8.7%
    
    
    
    8.7%
    
    
    
    8.3%
    
    
    
    8.8%
    
    
    
    9.7%End of year closing price
(dollars)
    
    
    143.48
    
    
    
    80.22
    
    
    
    83.06
    
    
    
    43.24
    
    
    
    31.80
    
    
    
    30.69
    
    
    
    39.16
    
    
    
    24.10
    
    
    
    31.94
    
    
    
    41.50
    
    
    
    42.50Beginning of year opening price
(dollars)
    
    
    80.22
    
    
    
    83.06
    
    
    
    43.24
    
    
    
    31.80
    
    
    
    30.69
    
    
    
    39.16
    
    
    
    24.10
    
    
    
    31.94
    
    
    
    41.50
    
    
    
    42.50
    
    
    
    35.44Change in share price (dollars)
    
    
    63.26
    
    
    
    (2.84
    )
    
    
    39.82
    
    
    
    11.44
    
    
    
    1.11
    
    
    
    (8.47
    )
    
    
    15.06
    
    
    
    (7.84
    )
    
    
    (9.56
    )
    
    
    (1.00
    )
    
    
    7.06Dividends per share (dollars)
    
    
    0.60
    
    
    
    0.60
    
    
    
    0.55
    
    
    
    0.50
    
    
    
    0.50
    
    
    
    0.50
    
    
    
    0.50
    
    
    
    0.50
    
    
    
    0.48
    
    
    
    0.52
    
    
    
    0.53Total shareholder return
    
    
    79.6%
    
    
    
    (2.7%
    )
    
    
    93.4%
    
    
    
    37.5%
    
    
    
    5.2%
    
    
    
    (20.4%
    )
    
    
    64.6%
    
    
    
    (23.0%
    )
    
    
    (21.9%
    )
    
    
    (1.1%
    )
    
    
    21.4%Short-term debt
    
    
    157.9
    
    
    
    252.2
    
    
    
    93.5
    
    
    
    176.2
    
    
    
    473.0
    
    
    
    501.1
    
    
    
    488.8
    
    
    
    474.5
    
    
    
    94.9
    
    
    
    101.9
    
    
    
    6.3Current portion of long-term debt
    
    
    400.4
    
    
    
    1.2
    
    
    
    10.3
    
    
    
    1.3
    
    
    
    3.4
    
    
    
    
    
    
    
    5.7
    
    
    
    7.4
    
    
    
    0.4
    
    
    
    2.7
    
    
    
    1.8Long-term debt
    
    
    1,357.1
    
    
    
    1,257.6
    
    
    
    1,258.6
    
    
    
    1,268.6
    
    
    
    1,019.9
    
    
    
    1,013.7
    
    
    
    413.7
    
    
    
    437.0
    
    
    
    933.3
    
    
    
    1,130.0
    
    
    
    620.0Total debt
    
    
    1,915.4
    
    
    
    1,511.0
    
    
    
    1,362.4
    
    
    
    1,446.1
    
    
    
    1,496.3
    
    
    
    1,514.8
    
    
    
    908.2
    
    
    
    918.9
    
    
    
    1,028.6
    
    
    
    1,234.6
    
    
    
    628.1Cash and cash equivalents
    
    
    (325.7
    )
    
    
    (93.9
    )
    
    
    (458.9
    )
    
    
    (4.7
    )
    
    
    (24.5
    )
    
    
    (45.3
    )
    
    
    (100.0
    )
    
    
    (44.0
    )
    
    
    (68.0
    )
    
    
    (8.8
    )
    
    
    Net debt 5
    
    
    1,589.7
    
    
    
    1,417.1
    
    
    
    903.5
    
    
    
    1,441.4
    
    
    
    1,471.8
    
    
    
    1,469.5
    
    
    
    808.2
    
    
    
    874.9
    
    
    
    960.6
    
    
    
    1,225.8
    
    
    
    628.1Shareholders equity
    
    
    2,780.3
    
    
    
    2,132.5
    
    
    
    2,385.6
    
    
    
    1,973.8
    
    
    
    2,092.5
    
    
    
    2,086.5
    
    
    
    2,012.1
    
    
    
    1,962.4
    
    
    
    2,453.8
    
    
    
    2,227.9
    
    
    
    1,405.5Total debt to capital
    
    
    40.8%
    
    
    
    41.5%
    
    
    
    36.4%
    
    
    
    42.3%
    
    
    
    41.7%
    
    
    
    42.1%
    
    
    
    31.1%
    
    
    
    31.9%
    
    
    
    29.5%
    
    
    
    35.7%
    
    
    
    30.9%Net debt to capital5
    
    
    36.4%
    
    
    
    39.9%
    
    
    
    27.5%
    
    
    
    42.2%
    
    
    
    41.3%
    
    
    
    41.3%
    
    
    
    28.7%
    
    
    
    30.8%
    
    
    
    28.1%
    
    
    
    35.5%
    
    
    
    30.9%Current assets
    
    
    1,310.2
    
    
    
    1,110.8
    
    
    
    1,243.6
    
    
    
    733.9
    
    
    
    832.0
    
    
    
    819.6
    
    
    
    871.7
    
    
    
    726.2
    
    
    
    774.2
    
    
    
    734.5
    
    
    
    467.0Current liabilities
    
    
    (1,103.5
    )
    
    
    (1,096.1
    )
    
    
    (703.7
    )
    
    
    (557.8
    )
    
    
    (823.4
    )
    
    
    (772.5
    )
    
    
    (1,020.4
    )
    
    
    (831.0
    )
    
    
    (445.0
    )
    
    
    (452.8
    )
    
    
    (188.2
    )Working capital
    
    
    206.7
    
    
    
    14.7
    
    
    
    539.9
    
    
    
    176.1
    
    
    
    8.6
    
    
    
    47.1
    
    
    
    (148.7
    )
    
    
    (104.8
    )
    
    
    329.2
    
    
    
    281.7
    
    
    
    278.8Cash and cash equivalents
    
    
    (325.7
    )
    
    
    (93.9
    )
    
    
    (458.9
    )
    
    
    (4.7
    )
    
    
    (24.5
    )
    
    
    (45.3
    )
    
    
    (100.0
    )
    
    
    (44.0
    )
    
    
    (68.0
    )
    
    
    (8.8
    )
    
    
    Short-term debt
    
    
    157.9
    
    
    
    252.2
    
    
    
    93.5
    
    
    
    176.2
    
    
    
    473.0
    
    
    
    501.1
    
    
    
    488.8
    
    
    
    474.5
    
    
    
    94.9
    
    
    
    101.9
    
    
    
    6.3Current portion of long-term debt
    
    
    400.4
    
    
    
    1.2
    
    
    
    10.3
    
    
    
    1.3
    
    
    
    3.4
    
    
    
    
    
    
    
    5.7
    
    
    
    7.4
    
    
    
    0.4
    
    
    
    2.7
    
    
    
    1.8Non-cash operating working capital
    
    
    439.3
    
    
    
    174.2
    
    
    
    184.8
    
    
    
    348.9
    
    
    
    460.5
    
    
    
    502.9
    
    
    
    245.8
    
    
    
    333.1
    
    
    
    356.5
    
    
    
    377.5
    
    
    
    286.9Sales
    
    
    3,766.7
    
    
    
    3,847.2
    
    
    
    3,244.4
    
    
    
    2,799.0
    
    
    
    2,224.4
    
    
    
    2,380.8
    
    
    
    2,542.9
    
    
    
    2,355.6
    
    
    
    2,607.0
    
    
    
    2,620.0
    
    
    
    1,604.9Freight
    
    
    255.8
    
    
    
    249.7
    
    
    
    238.7
    
    
    
    234.5
    
    
    
    215.2
    
    
    
    216.7
    
    
    
    222.1
    
    
    
    212.5
    
    
    
    216.5
    
    
    
    226.6
    
    
    
    144.6Transportation and distribution
    
    
    134.1
    
    
    
    121.9
    
    
    
    104.3
    
    
    
    98.7
    
    
    
    80.5
    
    
    
    83.3
    
    
    
    83.1
    
    
    
    77.0
    
    
    
    77.9
    
    
    
    61.7
    
    
    
    49.1Net sales6
    
    
    3,376.8
    
    
    
    3,475.6
    
    
    
    2,901.4
    
    
    
    2,465.8
    
    
    
    1,928.7
    
    
    
    2,080.8
    
    
    
    2,237.7
    
    
    
    2,066.1
    
    
    
    2,312.6
    
    
    
    2,331.7
    
    
    
    1,411.2Potash net salesNorth American
    
    
    470.5
    
    
    
    495.6
    
    
    
    347.5
    
    
    
    230.6
    
    
    
    215.3
    
    
    
    232.1
    
    
    
    237.8
    
    
    
    237.4
    
    
    
    227.6
    
    
    
    210.2
    
    
    
    157.6Offshore
    
    
    576.0
    
    
    
    668.3
    
    
    
    504.6
    
    
    
    336.2
    
    
    
    300.7
    
    
    
    293.4
    
    
    
    340.9
    
    
    
    325.9
    
    
    
    317.9
    
    
    
    294.0
    
    
    
    245.6Miscellaneous
products
    
    
    11.7
    
    
    
    13.0
    
    
    
    42.7
    
    
    
    52.3
    
    
    
    28.5
    
    
    
    6.3
    
    
    
    3.4
    
    
    
    2.3
    
    
    
    2.9
    
    
    
    3.8
    
    
    
    2.3Total
    
    
    1,058.2
    
    
    
    1,176.9
    
    
    
    894.8
    
    
    
    619.1
    
    
    
    544.5
    
    
    
    531.8
    
    
    
    582.1
    
    
    
    565.6
    
    
    
    548.4
    
    
    
    508.0
    
    
    
    405.5Potash sales (thousands KCl
tonnes)North American
    
    
    2,785
    
    
    
    3,144
    
    
    
    3,246
    
    
    
    2,870
    
    
    
    2,780
    
    
    
    2,894
    
    
    
    2,939
    
    
    
    2,871
    
    
    
    2,702
    
    
    
    3,017
    
    
    
    2,589Offshore
    
    
    4,411
    
    
    
    5,020
    
    
    
    5,030
    
    
    
    4,213
    
    
    
    3,547
    
    
    
    3,349
    
    
    
    3,973
    
    
    
    3,603
    
    
    
    3,581
    
    
    
    3,623
    
    
    
    3,023Total
    
    
    7,196
    
    
    
    8,164
    
    
    
    8,276
    
    
    
    7,083
    
    
    
    6,327
    
    
    
    6,243
    
    
    
    6,912
    
    
    
    6,474
    
    
    
    6,283
    
    
    
    6,640
    
    
    
    5,612Weighted average shares
outstandingBasic (thousands)
    
    
    103,960
    
    
    
    108,568
    
    
    
    107,967
    
    
    
    104,460
    
    
    
    104,042
    
    
    
    103,758
    
    
    
    104,820
    
    
    
    108,460
    
    
    
    108,354
    
    
    
    104,550
    
    
    
    91,074Diluted (thousands)
    
    
    106,230
    
    
    
    111,078
    
    
    
    110,739
    
    
    
    104,460
    
    
    
    104,632
    
    
    
    104,372
    
    
    
    105,406
    
    
    
    108,460
    
    
    
    109,003
    
    
    
    105,642
    
    
    
    92,119




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##### 



52 POTASHCORP
2006 FINANCIAL REVIEW | FINANCIAL PERFORMANCE INDICATORS
 FINANCIAL
PERFORMANCE INDICATORS (in
millions of US dollars except share, per-share and tonnage
amounts)
 NON-GAAP FINANCIAL MEASURES AND FOOTNOTES TO RECONCILIATIONS AND CALCULATIONS
  1
    
    The after-tax effects of asset impairment, plant shutdown, plant closure and office
consolidation charges and the gain on sale of long-term investments are included (as
applicable) in the data for 2006, 2004, 2003, 2000 and 1999 in the amounts of $4.5, $(30.8),
$203.2, $1.5 and $547.1, respectively.2
    
    PotashCorp uses EBITDA and adjusted EBITDA as supplemental financial measures of its
operational performance. Management believes EBITDA and adjusted EBITDA to be important
measures as they exclude the effects of items which primarily reflect the impact of long-term
investment decisions, rather than the performance of the companys day-to-day operations. As
compared to net income (loss) according to GAAP, these measures are limited in that they do
not reflect the periodic costs of certain capitalized tangible and intangible assets used in
generating revenues in the companys business, or the non-cash charges associated with
impairments and shutdown-related costs, or gain on sale of long-term investments. Management
evaluates such items through other financial measures such as capital expenditures and cash
flow provided by operating activities. The company believes that these measurements are useful
to measure a companys ability to service debt and to meet other payment obligations or as a
valuation measurement.EBITDA has not been adjusted for the non-cash effects of asset impairment, plant shutdown, plant
closure and office consolidation charges, nor the gain on sale of long-term investments. The
non-cash effects of these items applicable to 2006, 2004, 2003, 2000
and 1999 were $6.3, $(30.8),
$245.9, $(5.6) and $563.7, respectively. Considering the effects of these non-cash items,
adjusted EBITDA for 2006, 2004, 2003, 2000 and 1999 would have been
$1,124.2, $723.5, $417.7,
$508.2 and $401.8, respectively.3
    
    Cash flow prior to working capital changes is defined as the cash provided by operating
activities, exclusive of changes in non-cash operating working capital. PotashCorp uses cash
flow prior to working capital changes as a supplemental financial measure in its evaluation of
liquidity. Management believes that adjusting principally for the swings in non-cash working
capital items due to seasonality assists management in making long-term liquidity assessments.
The company also believes that this measurement is useful as a measure of liquidity or as a
valuation measurement.4
    
    PotashCorp uses cash flow and cash flow return as supplemental measures to evaluate the
performance of the companys assets in terms of the cash flow they have generated. Calculated
on the total cost basis of the companys assets rather than on the depreciated value, these
measures reflect cash returned on the total investment outlay. The company believes these
measures are one of the best predictors of shareholder value. As such, management believes
this information to be useful to investors.5
    
    Management believes that net debt and net-debt-to-capital ratio are useful to investors
because they are helpful in determining the companys leverage. It
 also believes that, since the company has the ability to and may elect to use a portion of
cash and cash equivalents to retire debt or to incur additional expenditures without
increasing debt, it is appropriate to apply cash and cash equivalents to debt in
calculating net debt and net debt to capital. PotashCorp believes that this measurement is
useful as a financial leverage measure.6
    
    Management includes net sales in its segment disclosures in the consolidated
financial statements pursuant to Canadian GAAP, which requires segmentation based upon the
companys internal organization and reporting of revenue and profit measures derived from
internal accounting methods. Net sales (and related per-tonne amounts and other ratios)
are primary revenue measures it uses and reviews in making decisions about operating
matters on a business segment basis. These decisions include assessments about potash,
nitrogen and phosphate performance and the resources to be allocated to these segments. It
also uses net sales (and related per-tonne amounts and other ratios) for business segment
planning and monthly forecasting. Net sales are calculated as sales revenues less freight,
transportation and distribution expenses. Net sales presented on a consolidated basis
rather than by business segment is considered a non-GAAP financial measure.7
    
    Compound annual growth rate expressed as a percentage.
  FINANCIAL TERMS
 
 Total shareholder return
 Debt to capital
 Net
debt to capital
 Current income taxes
 Cash flow
 Cash flow return
 EBITDA
 Adjusted EBITDA
 Return on assets
 Market value of total capital
 Weighted average cost of capital
 Average adjusted assets




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##### 



POTASHCORP
2006 FINANCIAL REVIEW / MANAGEMENTS RESPONSIBILITY          53
 MANAGEMENTS RESPONSIBILITY FOR FINANCIAL REPORTING
 MANAGEMENTS REPORT ON FINANCIAL STATEMENTS
       MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 Internal Control  Integrated Framework
 -s- W. Doyle
    
    -s- W. BrownleeW. Doyle
    
    W. BrownleePresident and
    
    Executive Vice President andChief Executive Officer
    
    Chief Financial Officer




---



##### 



54 POTASHCORP
2006 FINANCIAL REVIEW / INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS REPORTS
 REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
 TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF POTASH CORPORATION OF SASKATCHEWAN INC.
 Internal Control  Integrated Framework
    Internal Control  Integrated Framework Internal Control  Integrated Framework
  
 Independent Registered Chartered Accountants




---



##### 



POTASHCORP
2006 FINANCIAL REVIEW / INDEPENDENT
REGISTERED CHARTERED ACCOUNTANTS
REPORTS          55
 REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
 TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF POTASH CORPORATION OF SASKATCHEWAN INC.
    Internal
Control  Integrated Framework
 
 Independent Registered Chartered Accountants
 COMMENTS BY INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS  ON CANADA-UNITED STATES OF AMERICA REPORTING DIFFERENCES
  
 Independent Registered Chartered Accountants




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##### 



56 POTASHCORP 2006 FINANCIAL REVIEW / CONSOLIDATED FINANCIAL STATEMENTS
 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
 as at December 31
    
    in millions of US dollars except share amounts2006
    
    

2005AssetsCurrent assetsCash and cash equivalents
    
    $
    325.7
    
    
    $
    93.9Accounts
receivable (Note 5)
    
    
    442.3
    
    
    
    453.3Inventories
(Note 6)
    
    
    501.3
    
    
    
    522.5Prepaid expenses and other current assets
    
    
    40.9
    
    
    
    41.11,310.2
    
    
    
    1,110.8Property,
plant and equipment (Note 7)
    
    
    3,525.8
    
    
    
    3,262.8Other assets
(Note 8)
    
    
    1,254.7
    
    
    
    852.8Intangible
assets (Note 8)
    
    
    29.3
    
    
    
    34.5Goodwill
(Note 9)
    
    
    97.0
    
    
    
    97.0$
    6,217.0
    
    
    $
    5,357.9LiabilitiesCurrent liabilitiesShort-term
debt (Note 10)
    
    $
    157.9
    
    
    $
    252.2Accounts
payable and accrued charges (Note
11)
    
    
    545.2
    
    
    
    842.7Current
portion of long-term debt (Note
12)
    
    
    400.4
    
    
    
    1.21,103.5
    
    
    
    1,096.1Long-term
debt (Note 12)
    
    
    1,357.1
    
    
    
    1,257.6Future
income tax liability (Note 24)
    
    
    632.1
    
    
    
    543.3Accrued
pension and other post-retirement benefits
(Note 14)
    
    
    219.6
    
    
    
    213.9Accrued
environmental costs and asset retirement obligations
(Note 15)
    
    
    110.3
    
    
    
    97.3Other non-current liabilities and deferred credits
    
    
    14.1
    
    
    
    17.23,436.7
    
    
    
    3,225.4Commitments,
Contingencies and Guarantees(Notes
13, 28 and 29, respectively)Shareholders EquityShare
capital (Note 16)
    
    
    1,431.6
    
    
    
    1,379.3Unlimited authorization of common shares without par value; issued
and outstanding
104,801,049 and 103,593,792 shares at December 31, 2006 and 2005,
respectivelyUnlimited authorization of first preferred shares; none outstandingContributed
surplus (Note 17)
    
    
    62.3
    
    
    
    36.3Retained earnings
    
    
    1,286.4
    
    
    
    716.92,780.3
    
    
    
    2,132.5$
    6,217.0
    
    
    $
    5,357.9
   -s- A. Laberge
    
    -s- E. Robert StrombergDirector
    
    Director




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##### 



POTASHCORP 2006 FINANCIAL REVIEW / CONSOLIDATED FINANCIAL STATEMENTS          57
 CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
 for the years ended December 31
    in millions of US dollars except per-share amounts2006
    
    
    2005
    
    
    2004Sales(Note 18)
    
    $
    3,766.7
    
    
    $
    3,847.2
    
    
    $
    3,244.4Less: Freight
    
    
    255.8
    
    
    
    249.7
    
    
    
    238.7Transportation and distribution
    
    
    134.1
    
    
    
    121.9
    
    
    
    104.3Cost of
goods sold  (Note 19)
    
    
    2,374.8
    
    
    
    2,350.6
    
    
    
    2,220.0Gross Margin
    
    
    1,002.0
    
    
    
    1,125.0
    
    
    
    681.4Selling and administrative (Note 20)
    
    
    158.4
    
    
    
    144.5
    
    
    
    130.6Provincial mining and other taxes (Note 21)
    
    
    66.5
    
    
    
    137.2
    
    
    
    92.6Foreign exchange (gain) loss
    
    
    (4.4
    )
    
    
    12.5
    
    
    
    19.7Other income (Note 22)
    
    
    (94.0
    )
    
    
    (61.8
    )
    
    
    (75.8
    )126.5
    
    
    
    232.4
    
    
    
    167.1Operating Income
    
    
    875.5
    
    
    
    892.6
    
    
    
    514.3Interest Expense(Note 23)
    
    
    85.6
    
    
    
    82.3
    
    
    
    84.0Income Before Income Taxes
    
    
    789.9
    
    
    
    810.3
    
    
    
    430.3Income Taxes(Note 24)
    
    
    158.1
    
    
    
    267.4
    
    
    
    131.7Net Income
    
    
    631.8
    
    
    
    542.9
    
    
    
    298.6Retained Earnings, Beginning of Year
    
    
    716.9
    
    
    
    701.5
    
    
    
    462.8Repurchase of Common Shares(Note 16)
    
    
    
    
    
    
    (462.5
    )
    
    
    Dividends
    
    
    (62.3
    )
    
    
    (65.0
    )
    
    
    (59.9
    )Retained Earnings, End of Year
    
    $
    1,286.4
    
    
    $
    716.9
    
    
    $
    701.5Net Income per Share  Basic(Note 25)
    
    $
    6.08
    
    
    $
    5.00
    
    
    $
    2.77Net Income per Share  Diluted(Note 25)
    
    $
    5.95
    
    
    $
    4.89
    
    
    $
    2.70Dividends per Share
    
    $
    0.60
    
    
    $
    0.60
    
    
    $
    0.55




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##### 



58 POTASHCORP 2006 FINANCIAL REVIEW / CONSOLIDATED FINANCIAL STATEMENTS
 CONSOLIDATED STATEMENTS OF CASH FLOW
 for the years ended December 31
    
    
    
    
    
    
    
    
    
    
    
    
    
    in millions of US dollars2006
    
    
    
    
    
    
    2005
    
    
    
    
    
    
    2004Operating ActivitiesNet income
    
    
    
    
    
    $
    631.8
    
    
    
    
    
    
    $
    542.9
    
    
    
    
    
    
    $
    298.6Adjustments to reconcile net income to cash provided by
operating activitiesDepreciation and amortization
    
    
    242.4
    
    
    
    
    
    
    
    242.4
    
    
    
    
    
    
    
    240.0Stock-based compensation
    
    
    29.5
    
    
    
    
    
    
    
    27.5
    
    
    
    
    
    
    
    11.1(Gain) loss on disposal of property, plant and equipment
and long-term investments
    
    
    (8.6
    )
    
    
    
    
    
    
    11.8
    
    
    
    
    
    
    
    (35.1
    )Provisions for phosphate plant shutdowns
and PCS Yumbes S.C.M.
    
    
    6.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.6Foreign exchange on future income tax
    
    
    0.5
    
    
    
    
    
    
    
    8.9
    
    
    
    
    
    
    
    17.2Provision for future income tax
    
    
    50.0
    
    
    
    
    
    
    
    40.1
    
    
    
    
    
    
    
    26.3Undistributed earnings of equity investees
    
    
    (24.5
    )
    
    
    
    
    
    
    (33.5
    )
    
    
    
    
    
    
    (22.2
    )Other long-term liabilities
    
    
    13.4
    
    
    
    
    
    
    
    20.2
    
    
    
    
    
    
    
    (1.2
    )Subtotal of adjustments
    
    
    
    
    
    
    309.0
    
    
    
    
    
    
    
    317.4
    
    
    
    
    
    
    
    239.7Changes in non-cash operating working
capitalAccounts receivable
    
    
    11.0
    
    
    
    
    
    
    
    (107.6
    )
    
    
    
    
    
    
    (51.9
    )Inventories
    
    
    13.9
    
    
    
    
    
    
    
    (119.9
    )
    
    
    
    
    
    
    (10.5
    )Prepaid expenses and other current assets
    
    
    0.2
    
    
    
    
    
    
    
    (5.8
    )
    
    
    
    
    
    
    (6.3
    )Accounts payable and accrued charges
    
    
    (269.1
    )
    
    
    
    
    
    
    238.1
    
    
    
    
    
    
    
    188.7Subtotal of changes in non-cash operating working capital
    
    
    
    
    
    
    (244.0
    )
    
    
    
    
    
    
    4.8
    
    
    
    
    
    
    
    120.0Cash provided by operating activities
    
    
    
    
    
    
    696.8
    
    
    
    
    
    
    
    865.1
    
    
    
    
    
    
    
    658.3Investing ActivitiesAdditions to property, plant and equipment
    
    
    
    
    
    
    (508.6
    )
    
    
    
    
    
    
    (382.7
    )
    
    
    
    
    
    
    (220.5
    )Purchase of long-term investments
    
    
    
    
    
    
    (352.5
    )
    
    
    
    
    
    
    (190.9
    )
    
    
    
    
    
    
    (105.5
    )Proceeds from disposal of property, plant and equipment
and long-term investments
    
    
    
    
    
    
    22.0
    
    
    
    
    
    
    
    12.4
    
    
    
    
    
    
    
    103.3Other assets and intangible assets
    
    
    
    
    
    
    (0.6
    )
    
    
    
    
    
    
    5.9
    
    
    
    
    
    
    
    (2.8
    )Cash used in investing activities
    
    
    
    
    
    
    (839.7
    )
    
    
    
    
    
    
    (555.3
    )
    
    
    
    
    
    
    (225.5
    )Cash before financing activities
    
    
    
    
    
    
    (142.9
    )
    
    
    
    
    
    
    309.8
    
    
    
    
    
    
    
    432.8Financing ActivitiesProceeds from (repayment of) long-term debt obligations
    
    
    
    
    
    
    482.6
    
    
    
    
    
    
    
    (10.1
    )
    
    
    
    
    
    
    (1.0
    )(Repayment of) proceeds from short-term debt obligations
    
    
    
    
    
    
    (94.3
    )
    
    
    
    
    
    
    158.7
    
    
    
    
    
    
    
    (82.7
    )Dividends
    
    
    
    
    
    
    (60.9
    )
    
    
    
    
    
    
    (65.4
    )
    
    
    
    
    
    
    (56.1
    )Repurchase of common shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (851.9
    )
    
    
    
    
    
    
    Issuance of common shares
    
    
    
    
    
    
    47.3
    
    
    
    
    
    
    
    93.9
    
    
    
    
    
    
    
    161.2Cash provided by (used in) financing activities
    
    
    
    
    
    
    374.7
    
    
    
    
    
    
    
    (674.8
    )
    
    
    
    
    
    
    21.4Increase (Decrease) in Cash and Cash Equivalents
    
    
    
    
    
    
    231.8
    
    
    
    
    
    
    
    (365.0
    )
    
    
    
    
    
    
    454.2Cash and Cash Equivalents, Beginning of Year
    
    
    
    
    
    
    93.9
    
    
    
    
    
    
    
    458.9
    
    
    
    
    
    
    
    4.7Cash and Cash Equivalents, End of Year
    
    
    
    
    
    $
    325.7
    
    
    
    
    
    
    $
    93.9
    
    
    
    
    
    
    $
    458.9Cash and cash equivalents comprised of:Cash
    
    
    
    
    
    $
    7.9
    
    
    
    
    
    
    $
    18.4
    
    
    
    
    
    
    $
    78.3Short-term investments
    
    
    
    
    
    
    317.8
    
    
    
    
    
    
    
    75.5
    
    
    
    
    
    
    
    380.6$
    325.7
    
    
    
    
    
    
    $
    93.9
    
    
    
    
    
    
    $
    458.9Supplemental cash flow disclosureInterest paid
    
    
    
    
    
    $
    106.8
    
    
    
    
    
    
    $
    86.3
    
    
    
    
    
    
    $
    83.3Income taxes paid
    
    
    
    
    
    $
    226.8
    
    
    
    
    
    
    $
    141.6
    
    
    
    
    
    
    $
    33.5




---



##### 



NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts          59
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  1.     DESCRIPTION OF BUSINESS
   Potash
 
    
    five mines and mills and mining rights to potash reserves at a sixth location, all in the
province of Saskatchewan
    
    one mine and mill in the province of New Brunswick
  Phosphate
 
    
    a mine and processing plants in the state of North Carolina
    
    a mine and two processing plants
in the state of Florida
    
    a processing plant in the state of Louisiana
    
    phosphate feed plants in
five states and one in Brazil
    
    an industrial phosphoric acid plant in the state of Ohio
  Nitrogen
 
    
    three plants in the states of Georgia, Louisiana and Ohio
    
    large-scale operations in Trinidad
   2.     SIGNIFICANT ACCOUNTING POLICIES
 BASIS OF PRESENTATION
 PRINCIPLES OF CONSOLIDATION
  
    
    PCS Sales (Canada) Inc.
 
    
    PCS Joint Venture, Ltd. (PCS Joint Venture)
 
    
    PCS Sales (USA), Inc.
    
    PCS Phosphate Company, Inc. (PCS Phosphate)
 
    
    PCS Purified Phosphates
 
    
    White Springs Agricultural Chemicals, Inc. (White Springs)
    
    PCS Nitrogen Fertilizer, L.P.
    
    PCS Nitrogen Ohio, L.P.
    
    PCS Nitrogen Trinidad Limited
    
    PCS Cassidy Lake Company (PCS Cassidy Lake)
    
    PCS Yumbes S.C.M. (PCS Yumbes)  sold in 2004
    
    PCS Fosfatos do Brasil Ltda.
  CASH EQUIVALENTS
  INVENTORIES
  PREPAID EXPENSES




---



##### 



60 NOTES
TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts
  2.     SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 PROPERTY, PLANT AND EQUIPMENT
    GOODWILL
  OTHER ASSETS AND INTANGIBLE ASSETS
      ASSET IMPAIRMENT
 LEASES
  PENSION AND OTHER POST-RETIREMENT BENEFITS




---



##### 



NOTES
TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in  millions of US dollars except share
and per-share
amounts 61
 2.
    
    SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    ENVIRONMENTAL COSTS AND ASSET RETIREMENT OBLIGATIONS
   STOCK-BASED COMPENSATION PLANS
  FOREIGN EXCHANGE TRANSACTIONS
 DERIVATIVE FINANCIAL INSTRUMENTS




---



##### 



62 NOTES
TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and
per-share amounts
  2.
    
    SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  REVENUE RECOGNITION
  RECENT ACCOUNTING PRONOUNCEMENTS
 Comprehensive Income, Equity, Financial Instruments and Hedges
  
    
    Financial assets will be classified as either loans and receivables, held-to-maturity,
held-for-trading or available-for-sale. Loans and receivables will include all loans and
receivables except debt securities and will be accounted for at amortized cost.
Held-to-maturity classification will be restricted to fixed maturity
instruments that the company intends and is able to hold to maturity and will be accounted for at
amortized cost. Held-for-trading instruments will be recorded at fair value with unrealized gains
and losses reported in net income. The remaining financial assets will be classified as
available-for-sale. These will be recorded at fair value with unrealized gains and losses
reported in a new category of the Consolidated Statement of Financial Position under
shareholders equity called other comprehensive income (OCI);
    
    Financial liabilities will be classified as either held-for-trading or other.
Held-for-trading instruments will be recorded at fair value with realized and unrealized gains
and losses reported in net income. Other instruments will be accounted for at amortized cost
with gains and losses reported in net income in the period that the liability is derecognized;
and
    
    Derivatives will be classified as held-for-trading unless designated as hedging instruments.
All derivatives, including embedded derivatives that must be separately accounted for, will be
recorded at fair value on the Consolidated Statement of Financial Position. For derivatives
that hedge the changes in fair value of an asset or liability, changes in the derivatives
fair value will be reported in net
income and be substantially offset by changes in the fair value of the hedged asset or liability
attributable to the risk being hedged. For derivatives that hedge variability in cash flows, the
effective portion of the changes in the derivatives fair value will be initially recognized in
OCI and the ineffective portion will be recorded in net income. The amounts temporarily recorded
in OCI will subsequently
 be reclassified to net income in the periods when net income is affected
by the variability in the cash flows of the hedged item.
  Stripping Costs Incurred in the Production Phase of a Mining Operation
  Accounting Changes
  Stock-Based Compensation for Employees Eligible to Retire Before the Vesting Date
  Determining the Variability to be Considered in Applying the Variable Interest Entity Standards




---



##### 



NOTES
TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and
per-share
amounts 63
 2.
    
    SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  3.
    
    CHANGE IN ACCOUNTING POLICIES
 IMPLICIT VARIABLE INTEREST
  CONDITIONAL ASSET RETIREMENT OBLIGATIONS
  4.
    
    BUSINESS ACQUISITIONS
 2006 AND 2005
  2004
 5.
    
    ACCOUNTS RECEIVABLE
 2006
    
    
    2005Trade accounts
     Canpotex
    
    $
    84.1
    
    
    $
    71.6 Other
    
    
    329.3
    
    
    
    343.0Non-trade accounts
    
    
    33.6
    
    
    
    43.8447.0
    
    
    
    458.4Less allowance for doubtful accounts
    
    
    (4.7
    )
    
    
    (5.1
    )$
    442.3
    
    
    $
    453.3
 6.
    
    INVENTORIES
 2006
    
    
    2005Finished product
    
    $
    237.1
    
    
    $
    268.5Intermediate products
    
    
    98.5
    
    
    
    94.9Raw materials
    
    
    62.4
    
    
    
    59.9Materials and supplies
    
    
    103.3
    
    
    
    99.2$
    501.3
    
    
    $
    522.5
 7.
    
    PROPERTY, PLANT AND EQUIPMENT
 2006AccumulatedDepreciation and
    
    Net BookCost
    
    Amortization
    
    ValueLand and improvements
    
    $
    233.3
    
    
    $
    51.9
    
    
    $
    181.4Buildings and improvements
    
    
    547.9
    
    
    
    206.4
    
    
    
    341.5Machinery and equipment
    
    
    4,618.0
    
    
    
    1,750.4
    
    
    
    2,867.6Mine development costs
    
    
    200.4
    
    
    
    65.1
    
    
    
    135.3$
    5,599.6
    
    
    $
    2,073.8
    
    
    $
    3,525.82005AccumulatedDepreciation and
    
    Net BookCost
    
    Amortization
    
    ValueLand and improvements
    
    $
    224.4
    
    
    $
    47.0
    
    
    $
    177.4Buildings and improvements
    
    
    521.1
    
    
    
    194.2
    
    
    
    326.9Machinery and equipment
    
    
    4,280.7
    
    
    
    1,622.8
    
    
    
    2,657.9Mine development costs
    
    
    164.3
    
    
    
    63.7
    
    
    
    100.6$
    5,190.5
    
    
    $
    1,927.7
    
    
    $
    3,262.8




---



##### 



64 NOTES
TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and
per-share amounts
  7.
    
    PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
  8.
    
    OTHER ASSETS AND INTANGIBLE ASSETS
 2006
    
    
    2005Other assetsInvestments at equitySQM  32-percent ownership; quoted market value of $1,140.3
    
    $
    514.7
    
    
    $
    261.0Arab Potash Company (APC)  28-percent ownership; quoted market value of $361.4
    
    
    223.7
    
    
    
    224.6Other
    
    
    19.1
    
    
    
    19.6Investments at costSinofert Holdings Limited (Sinofert)  20-percent ownership; quoted market value of $482.3
    
    
    223.7
    
    
    
    97.4ICL  10-percent ownership; quoted market value of $799.0
    
    
    167.7
    
    
    
    167.7Deferred charges  net of accumulated amortization of $50.0 (2005  $50.7)
    
    
    44.5
    
    
    
    30.1Accrued pension benefit asset
    
    
    26.8
    
    
    
    25.4Other
    
    
    34.5
    
    
    
    27.0$
    1,254.7
    
    
    $
    852.8Intangible assets  net of accumulated amortization of $22.6 (2005  $15.7)
    
    $
    29.3
    
    
    $
    34.5
 9.
    
    GOODWILL
 2006
    
    
    2005Cost
    
    $
    104.3
    
    
    $
    104.3Accumulated amortization
    
    
    7.3
    
    
    
    7.3$
    97.0
    
    
    $
    97.0
  10.
    
    SHORT-TERM DEBT




---



##### 



NOTES
TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and
per-share
amounts 65
 10.
    
    SHORT-TERM DEBT (CONTINUED)
  11.
    
    ACCOUNTS PAYABLE AND ACCRUED CHARGES
 2006
    
    
    2005Trade accounts
    
    $
    228.9
    
    
    $
    224.6Income and other taxes
    
    
    75.5
    
    
    
    239.4Accrued compensation
    
    
    49.5
    
    
    
    72.7Deferred revenue
    
    
    25.2
    
    
    
    9.1Accrued interest
    
    
    24.6
    
    
    
    18.5Margin deposits
    
    
    22.8
    
    
    
    173.7Dividends
    
    
    16.1
    
    
    
    16.1Current portion accrued environmental costs and asset retirement obligations
    
    
    9.0
    
    
    
    12.3Current portion pension and other post-retirement benefits
    
    
    8.9
    
    
    
    8.5Other payables
    
    
    84.7
    
    
    
    67.8$
    545.2
    
    
    $
    842.7
 12.
    
    LONG-TERM DEBT
 2006
    
    
    2005Notes Payable7.125% notes payable June 15, 2007
    
    $
    400.0
    
    
    $
    400.07.750% notes payable May 31, 2011
    
    
    600.0
    
    
    
    600.04.875% notes payable March 1, 2013
    
    
    250.0
    
    
    
    250.05.875% notes payable December 1, 2036
    
    
    500.0
    
    
    
    The notes were issued under US shelf
registration statements covering up to
$2,000.0 of debt securities. The notes are
unsecured and there are no sinking fund
requirements prior to maturity. The 2011,
2013 and 2036 notes are redeemable, in
whole or in part, at the companys option at
any time prior to maturity for a price at least
equal to the principal amount of the notes to
be redeemed, plus accrued interest. Under
certain conditions related to change in control,
the company is required to make an offer to
purchase all, or any part, of the 2036 notes at
101 percent of the principal amount of the
notes repurchased, plus accrued interest.Other
    
    
    7.5
    
    
    
    8.81,757.5
    
    
    
    1,258.8Less current maturities
    
    
    400.4
    
    
    
    1.2$
    1,357.1
    
    
    $
    1,257.6
 2007
    
    $
    400.42008
    
    
    0.22009
    
    
    0.32010
    
    
    0.32011
    
    
    600.4Subsequent years
    
    
    755.9$
    1,757.5
 13.
    
    COMMITMENTS
 LEASE COMMITMENTS
  PURCHASE COMMITMENTS
    OTHER COMMITMENTS




---



##### 



66 NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL
STATEMENTS / in millions of
US dollars except share and per-share amounts
  13.
    
    COMMITMENTS (CONTINUED)
  Operating
    
    Purchase
    
    OtherLeases
    
    Commitments
    
    Commitments2007
    
    $
    79.3
    
    
    $
    143.0
    
    
    $
    21.52008
    
    
    70.7
    
    
    
    123.4
    
    
    
    12.52009
    
    
    74.3
    
    
    
    85.4
    
    
    
    11.62010
    
    
    69.3
    
    
    
    72.8
    
    
    
    7.12011
    
    
    61.1
    
    
    
    67.7
    
    
    
    2.9Thereafter
    
    
    292.0
    
    
    
    338.8
    
    
    
    18.6Total
    
    $
    646.7
    
    
    $
    831.1
    
    
    $
    74.2
 14.
    
    PENSION AND OTHER POST-RETIREMENT BENEFITS
 PENSION PLANS
 Canada
 United States
  Trinidad
  OTHER POST-RETIREMENT PLANS
   DEFINED BENEFIT PLANS
  Pension
    
    
    Other2006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005
    
    
    2004Costs arising in the periodService cost for benefits earned during the year
    
    $
    14.2
    
    
    $
    13.8
    
    
    $
    12.9
    
    
    $
    4.7
    
    
    $
    5.7
    
    
    $
    5.2Interest cost on projected benefit obligations
    
    
    33.5
    
    
    
    31.1
    
    
    
    30.2
    
    
    
    12.4
    
    
    
    13.3
    
    
    
    13.2Actual return on plan assets
    
    
    (42.1
    )
    
    
    (34.3
    )
    
    
    (47.1
    )
    
    
    
    
    
    
    
    
    
    
    Actuarial loss (gain)
    
    
    8.9
    
    
    
    27.9
    
    
    
    23.3
    
    
    
    18.4
    
    
    
    (12.7
    )
    
    
    (6.8
    )Plan amendments
    
    
    1.4
    
    
    
    3.5
    
    
    
    
    
    
    
    (1.7
    )
    
    
    11.5
    
    
    
    Plan curtailments
    
    
    
    
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in valuation allowance
    
    
    2.0
    
    
    
    2.4
    
    
    
    (2.2
    )
    
    
    
    
    
    
    
    
    
    
    Costs arising in the period
    
    
    17.9
    
    
    
    44.8
    
    
    
    17.1
    
    
    
    33.8
    
    
    
    17.8
    
    
    
    11.6Difference between costs arising in the period and
costs recognized in the period in respect of:Return on plan assets
    
    
    3.9
    
    
    
    (2.7
    )
    
    
    13.6
    
    
    
    
    
    
    
    
    
    
    
    Actuarial (gain) loss
    
    
    (1.7
    )
    
    
    (23.6
    )
    
    
    (20.2
    )
    
    
    (16.4
    )
    
    
    15.4
    
    
    
    9.5Plan amendments
    
    
    1.0
    
    
    
    (2.3
    )
    
    
    0.4
    
    
    
    (1.1
    )
    
    
    (13.0
    )
    
    
    (1.9
    )Transitional obligation
    
    
    1.6
    
    
    
    1.4
    
    
    
    1.5
    
    
    
    0.4
    
    
    
    0.3
    
    
    
    Net expense
    
    $
    22.7
    
    
    $
    17.6
    
    
    $
    12.4
    
    
    $
    16.7
    
    
    $
    20.5
    
    
    $
    19.2
  Pension
    
    
    Other2006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005
    
    
    2004Discount rate  obligation
    
    
    5.85
    %
    
    
    5.70
    %
    
    
    5.75
    %
    
    
    5.85
    %
    
    
    5.70
    %
    
    
    5.75
    %Discount rate  expense
    
    
    5.70
    %
    
    
    5.75
    %
    
    
    6.10
    %
    
    
    5.70
    %
    
    
    5.75
    %
    
    
    6.10
    %1Long-term rate of return on assets
    
    
    8.00
    %
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    n/a
    
    
    n/a
    
    
    n/aRate of increase in compensation levels
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    n/a
    
    
    n/a
    
    
    n/a
 1
    Discount rate changed to 6.25% effective July 1, 2004, upon recognition of Medicare Part D.




---



##### 



NOTES TO THE POTASHCORP CONSOLIDATED
FINANCIAL STATEMENTS / in millions of US dollars except share and
per-share
amounts 67
 14.
    
    PENSION AND OTHER POST-RETIREMENT BENEFITS (CONTINUED)
  2006
    
    
    2005
    
    
    2004Health-care cost trend rates assumed for next year
    
    
    6.00
    %
    
    
    6.00
    %
    
    
    6.00
    %Ultimate health-care cost trend rate assumed
    
    
    6.00
    %
    
    
    6.00
    %
    
    
    6.00
    %Year that the rate reaches the ultimate trend rate
    
    
    2006
    
    
    2005
    
    
    2004
     Pension
    
    
    Other
    
    
    Total2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Change in benefit obligationsBalance, beginning of year
    
    $
    595.3
    
    
    $
    548.6
    
    
    $
    222.6
    
    
    $
    235.4Service cost
    
    
    14.2
    
    
    
    13.8
    
    
    
    4.7
    
    
    
    5.7Interest cost
    
    
    33.5
    
    
    
    31.1
    
    
    
    12.4
    
    
    
    13.3Participants contributions
    
    
    0.3
    
    
    
    0.2
    
    
    
    0.1
    
    
    
    3.1Actuarial loss (gain)
    
    
    8.9
    
    
    
    27.9
    
    
    
    18.4
    
    
    
    (12.7
    )Foreign exchange rate changes
    
    
    2.0
    
    
    
    (3.4
    )
    
    
    (0.2
    )
    
    
    0.7Plan amendments
    
    
    1.4
    
    
    
    3.5
    
    
    
    (1.7
    )
    
    
    (11.5
    )Benefits paid
    
    
    (29.2
    )
    
    
    (26.4
    )
    
    
    (8.9
    )
    
    
    (11.4
    )Balance, end of year
    
    
    626.4
    
    
    
    595.3
    
    
    
    247.4
    
    
    
    222.6
    
    
    $
    873.8
    
    
    $
    817.9Change in plan assetsFair value, beginning of year
    
    
    480.8
    
    
    
    452.9
    
    
    
    
    
    
    
    Actual return on plan assets
    
    
    42.1
    
    
    
    34.3
    
    
    
    
    
    
    
    Employer contributions
    
    
    24.7
    
    
    
    24.2
    
    
    
    8.8
    
    
    
    8.3Participants contributions
    
    
    0.3
    
    
    
    0.2
    
    
    
    0.1
    
    
    
    3.1Foreign exchange rate changes
    
    
    1.2
    
    
    
    (4.4
    )
    
    
    
    
    
    
    Benefits paid
    
    
    (29.2
    )
    
    
    (26.4
    )
    
    
    (8.9
    )
    
    
    (11.4
    )Fair value, end of year
    
    
    519.9
    
    
    
    480.8
    
    
    
    
    
    
    
    
    
    
    
    519.9
    
    
    
    480.8Funded status
    
    
    (106.5
    )
    
    
    (114.5
    )
    
    
    (247.4
    )
    
    
    (222.6
    )
    
    
    (353.9
    )
    
    
    (337.1
    )Valuation allowance
    
    
    (16.1
    )
    
    
    (14.1
    )
    
    
    
    
    
    
    
    
    
    
    (16.1
    )
    
    
    (14.1
    )Unamortized net actuarial loss
    
    
    117.4
    
    
    
    118.4
    
    
    
    58.0
    
    
    
    41.6
    
    
    
    175.4
    
    
    
    160.0Unamortized prior service cost
    
    
    5.7
    
    
    
    6.0
    
    
    
    (18.5
    )
    
    
    (19.5
    )
    
    
    (12.8
    )
    
    
    (13.5
    )Unamortized transitional obligation
    
    
    5.1
    
    
    
    6.7
    
    
    
    0.6
    
    
    
    1.0
    
    
    
    5.7
    
    
    
    7.7Accrued pension and other post-retirement
benefit asset (liability)
    
    $
    5.6
    
    
    $
    2.5
    
    
    $
    (207.3
    )
    
    $
    (199.5
    )
    
    $
    (201.7
    )
    
    $
    (197.0
    )Amounts included in:Other assets (Note 8)
    
    $
    26.4
    
    
    $
    25.0
    
    
    $
    0.4
    
    
    $
    0.4
    
    
    $
    26.8
    
    
    $
    25.4LiabilitiesCurrent (Note 11)
    
    
    (0.3
    )
    
    
    (0.4
    )
    
    
    (8.6
    )
    
    
    (8.1
    )
    
    
    (8.9
    )
    
    
    (8.5
    )Long-term
    
    
    (20.5
    )
    
    
    (22.1
    )
    
    
    (199.1
    )
    
    
    (191.8
    )
    
    
    (219.6
    )
    
    
    (213.9
    )$
    5.6
    
    
    $
    2.5
    
    
    $
    (207.3
    )
    
    $
    (199.5
    )
    
    $
    (201.7
    )
    
    $
    (197.0
    )




---



##### 



68 NOTES TO THE POTASHCORP CONSOLIDATED
FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts
 14.
    
    PENSION AND OTHER POST-RETIREMENT BENEFITS (CONTINUED)
    2006
    
    
    2005Projected benefit obligation
    
    $
    597.5
    
    
    $
    568.4Accumulated benefit obligation
    
    
    543.4
    
    
    
    521.0Fair value of plan assets
    
    
    457.7
    
    
    
    419.0
 SENSITIVITY OF ASSUMPTIONS
  2006
    
    
    2005
    
    
    2004As reported:Benefit obligation
    
    $
    247.4
    
    
    $
    222.6
    
    
    $
    235.4Aggregate of service and interest cost
    
    
    17.1
    
    
    
    19.0
    
    
    
    18.4Impact of increase of 1.0 percentage point:Benefit obligation
    
    
    36.7
    
    
    
    31.4
    
    
    
    34.4Aggregate of service and interest cost
    
    
    2.8
    
    
    
    3.2
    
    
    
    3.3Impact of decrease of 1.0 percentage point:Benefit obligation
    
    
    (29.2
    )
    
    
    (27.8
    )
    
    
    (35.3
    )Aggregate of service and interest cost
    
    
    (2.2
    )
    
    
    (2.9
    )
    
    
    (3.4
    )
 PLAN ASSETS
  Asset Category
    
    
    Target
    
    
    2006
    
    
    2005Equity securities
    
    
    65
    %
    
    
    66
    %
    
    
    67
    %Debt securities
    
    
    35
    %
    
    
    34
    %
    
    
    33
    %Real estate
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
   DEFINED CONTRIBUTION PLANS




---



##### 



NOTES TO THE POTASHCORP CONSOLIDATED
FINANCIAL STATEMENTS / in
millions of US dollars except share and per-share
amounts 69
 14.
    
    PENSION AND OTHER POST-RETIREMENT BENEFITS (CONTINUED)
 CASH PAYMENTS
  ESTIMATED FUTURE BENEFIT PAYMENTS
  OtherReduction dueto MedicarePension
    
    
    Gross
    
    
    Part D Subsidy
    
    
    Net2007
    
    $
    27.0
    
    
    $
    10.2
    
    
    $
    0.9
    
    
    $
    9.32008
    
    
    29.9
    
    
    
    11.0
    
    
    
    1.1
    
    
    
    9.92009
    
    
    31.4
    
    
    
    11.7
    
    
    
    1.2
    
    
    
    10.52010
    
    
    33.2
    
    
    
    12.7
    
    
    
    1.4
    
    
    
    11.32011
    
    
    35.1
    
    
    
    13.7
    
    
    
    1.6
    
    
    
    12.12012-2016
    
    
    211.4
    
    
    
    82.0
    
    
    
    10.9
    
    
    
    71.1
 15.
    
    ENVIRONMENTAL COSTS AND ASSET RETIREMENT OBLIGATIONS
 SITE ASSESSMENT AND REMEDIATION COSTS
  ENVIRONMENTAL OPERATING COSTS AND CAPITAL EXPENDITURES




---



##### 



70 NOTES TO THE POTASHCORP CONSOLIDATED
FINANCIAL STATEMENTS / in
millions of US dollars except share and per-share amounts
 15.
    
    ENVIRONMENTAL COSTS AND ASSET RETIREMENT OBLIGATIONS (CONTINUED)
  2006
    
    
    2005Asset retirement obligations, beginning of year
    
    $
    91.8
    
    
    $
    85.0Liabilities incurred
    
    
    7.2
    
    
    
    8.5Liabilities settled
    
    
    (3.6
    )
    
    
    (6.0
    )Accretion expense
    
    
    3.3
    
    
    
    4.4Revisions in estimated cash flows
    
    
    2.0
    
    
    
    (0.1
    )Asset retirement obligations, end of year
    
    
    100.7
    
    
    
    91.8Other environmental liabilities
    
    
    18.6
    
    
    
    17.8Less current portion (Note 11)
    
    
    (9.0
    )
    
    
    (12.3
    )$
    110.3
    
    
    $
    97.3
 16.
    
    SHARE CAPITAL
 AUTHORIZED
  ISSUED
    
    2006
    
    
    2005
    
    
    2004Consideration
    
    
    Consideration
    
    
    ConsiderationIssued, beginning of year
    
    
    $ 1,379.3
    
    
    
    $ 1,408.4
    
    
    
    $ 1,245.8Shares issued under option plans
    
    
    50.9
    
    
    
    95.7
    
    
    
    162.1Shares issued for dividend reinvestment plan
    
    
    1.4
    
    
    
    0.3
    
    
    
    0.5Shares repurchased
    
    
    
    
    
    
    (125.1
    )
    
    
    Issued, end of year
    
    
    $ 1,431.6
    
    
    
    $ 1,379.3
    
    
    
    $ 1,408.4ISSUED
    
    2006
    
    
    2005
    
    
    2004Number of
    
    
    Number of
    
    
    Number ofCommon Shares
    
    
    Common Shares
    
    
    Common SharesIssued, beginning of year
    
    
    103,593,792
    
    
    
    110,630,503
    
    
    
    106,224,432Shares issued under option plans
    
    
    1,193,808
    
    
    
    2,459,594
    
    
    
    4,397,324Shares issued for dividend reinvestment plan
    
    
    13,449
    
    
    
    3,695
    
    
    
    8,747Shares repurchased
    
    
    
    
    
    
    (9,500,000
    )
    
    
    Issued, end of year
    
    
    104,801,049
    
    
    
    103,593,792
    
    
    
    110,630,503
 NORMAL COURSE ISSUER BID
   17.
    
    CONTRIBUTED SURPLUS
 2006
    
    
    2005
    
    
    2004Balance, beginning of year
    
    $
    36.3
    
    
    $
    275.7
    
    
    $
    265.2Stock-based compensation
    
    
    26.0
    
    
    
    24.9
    
    
    
    10.5Share repurchases (Note 16)
    
    
    
    
    
    
    (264.3
    )
    
    
    Balance, end of year
    
    $
    62.3
    
    
    $
    36.3
    
    
    $
    275.7




---



##### 



NOTES TO THE POTASHCORP CONSOLIDATED
FINANCIAL STATEMENTS / in millions of US dollars except share and per-share
amounts 71
 18.
    
    SEGMENT INFORMATION
  2006Potash
    
    
    Nitrogen
    
    
    Phosphate
    
    
    All others
    
    
    ConsolidatedSales
    
    $
    1,227.5
    
    
    $
    1,284.1
    
    
    $
    1,255.1
    
    
    $
    
    
    
    $
    3,766.7Freight
    
    
    130.5
    
    
    
    36.8
    
    
    
    88.5
    
    
    
    
    
    
    
    255.8Transportation and distribution
    
    
    38.8
    
    
    
    52.2
    
    
    
    43.1
    
    
    
    
    
    
    
    134.1Net sales  third party
    
    
    1,058.2
    
    
    
    1,195.1
    
    
    
    1,123.5
    
    
    
    Cost of goods sold
    
    
    497.1
    
    
    
    879.5
    
    
    
    998.2
    
    
    
    
    
    
    
    2,374.8Gross Margin
    
    
    561.1
    
    
    
    315.6
    
    
    
    125.3
    
    
    
    
    
    
    
    1,002.0Inter-segment sales
    
    
    5.7
    
    
    
    112.4
    
    
    
    7.2
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    58.3
    
    
    
    77.6
    
    
    
    94.6
    
    
    
    11.9
    
    
    
    242.4Goodwill
    
    
    
    
    
    
    96.6
    
    
    
    
    
    
    
    0.4
    
    
    
    97.0Assets
    
    
    1,478.0
    
    
    
    1,480.7
    
    
    
    1,753.9
    
    
    
    1,504.4
    
    
    
    6,217.0Additions to property, plant
and equipment
    
    
    293.2
    
    
    
    75.5
    
    
    
    119.7
    
    
    
    20.2
    
    
    
    508.62005Potash
    
    
    Nitrogen
    
    
    Phosphate
    
    
    All others
    
    
    ConsolidatedSales
    
    $
    1,341.1
    
    
    $
    1,368.8
    
    
    $
    1,137.3
    
    
    $
    
    
    
    $
    3,847.2Freight
    
    
    129.7
    
    
    
    39.9
    
    
    
    80.1
    
    
    
    
    
    
    
    249.7Transportation and distribution
    
    
    34.5
    
    
    
    49.5
    
    
    
    37.9
    
    
    
    
    
    
    
    121.9Net sales  third party
    
    
    1,176.9
    
    
    
    1,279.4
    
    
    
    1,019.3
    
    
    
    Cost of goods sold
    
    
    469.5
    
    
    
    960.7
    
    
    
    920.4
    
    
    
    
    
    
    
    2,350.6Gross Margin
    
    
    707.4
    
    
    
    318.7
    
    
    
    98.9
    
    
    
    
    
    
    
    1,125.0Inter-segment sales
    
    
    5.8
    
    
    
    100.7
    
    
    
    14.0
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    64.5
    
    
    
    72.0
    
    
    
    95.6
    
    
    
    10.3
    
    
    
    242.4Goodwill
    
    
    
    
    
    
    96.6
    
    
    
    
    
    
    
    0.4
    
    
    
    97.0Assets
    
    
    1,236.8
    
    
    
    1,526.5
    
    
    
    1,723.0
    
    
    
    871.6
    
    
    
    5,357.9Additions to property, plant
and equipment
    
    
    165.5
    
    
    
    99.3
    
    
    
    109.5
    
    
    
    8.4
    
    
    
    382.72004Potash
    
    
    Nitrogen
    
    
    Phosphate
    
    
    All others
    
    
    ConsolidatedSales
    
    $
    1,056.1
    
    
    $
    1,210.4
    
    
    $
    977.9
    
    
    $
    
    
    
    $
    3,244.4Freight
    
    
    128.7
    
    
    
    38.1
    
    
    
    71.9
    
    
    
    
    
    
    
    238.7Transportation and distribution
    
    
    32.6
    
    
    
    42.3
    
    
    
    29.4
    
    
    
    
    
    
    
    104.3Net sales  third party
    
    
    894.8
    
    
    
    1,130.0
    
    
    
    876.6
    
    
    
    Cost of goods sold
    
    
    472.0
    
    
    
    887.2
    
    
    
    860.8
    
    
    
    
    
    
    
    2,220.0Gross Margin
    
    
    422.8
    
    
    
    242.8
    
    
    
    15.8
    
    
    
    
    
    
    
    681.4Inter-segment sales
    
    
    5.9
    
    
    
    92.9
    
    
    
    12.1
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    66.4
    
    
    
    79.7
    
    
    
    84.4
    
    
    
    9.5
    
    
    
    240.0Goodwill
    
    
    
    
    
    
    96.6
    
    
    
    
    
    
    
    0.4
    
    
    
    97.0Assets
    
    
    1,374.9
    
    
    
    1,428.4
    
    
    
    1,615.6
    
    
    
    707.9
    
    
    
    5,126.8Additions to property, plant
and equipment
    
    
    92.2
    
    
    
    62.1
    
    
    
    56.8
    
    
    
    9.4
    
    
    
    220.5




---



##### 



72 NOTES TO THE POTASHCORP CONSOLIDATED
FINANCIAL STATEMENTS / in
millions of US dollars except share and per-share amounts
 18.
    
    SEGMENT INFORMATION (CONTINUED)
  Country of OriginCanada
    
    
    United States
    
    
    Trinidad
    
    
    Other
    
    
    Consolidated2006Sales to customers outside the companyCanada
    
    $
    65.7
    
    
    $
    92.0
    
    
    $
    
    
    
    $
    
    
    
    $
    157.7United States
    
    
    557.5
    
    
    
    1,454.9
    
    
    
    530.2
    
    
    
    
    
    
    
    2,542.6PhosChem
    
    
    
    
    
    
    232.2
    
    
    
    
    
    
    
    
    
    
    
    232.2Canpotex
    
    
    467.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    467.1Other
    
    
    137.2
    
    
    
    136.7
    
    
    
    77.0
    
    
    
    16.2
    
    
    
    367.1$
    1,227.5
    
    
    $
    1,915.8
    
    
    $
    607.2
    
    
    $
    16.2
    
    
    $
    3,766.7Operating income
    
    $
    426.9
    
    
    $
    216.4
    
    
    $
    171.8
    
    
    $
    60.4
    
    
    $
    875.5Capital assets and goodwill
    
    $
    1,207.7
    
    
    $
    1,761.3
    
    
    $
    610.4
    
    
    $
    43.4
    
    
    $
    3,622.8Country of OriginCanada
    
    
    United States
    
    
    Trinidad
    
    
    Other
    
    
    Consolidated2005Sales to customers outside the companyCanada
    
    $
    69.3
    
    
    $
    105.9
    
    
    $
    
    
    
    $
    
    
    
    $
    175.2United States
    
    
    576.6
    
    
    
    1,470.9
    
    
    
    545.5
    
    
    
    
    
    
    
    2,593.0PhosChem
    
    
    
    
    
    
    166.7
    
    
    
    
    
    
    
    
    
    
    
    166.7Canpotex
    
    
    577.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    577.1Other
    
    
    118.2
    
    
    
    106.7
    
    
    
    86.6
    
    
    
    23.7
    
    
    
    335.2$
    1,341.2
    
    
    $
    1,850.2
    
    
    $
    632.1
    
    
    $
    23.7
    
    
    $
    3,847.2Operating income
    
    $
    464.1
    
    
    $
    170.2
    
    
    $
    199.3
    
    
    $
    59.0
    
    
    $
    892.6Capital assets and goodwill
    
    $
    954.6
    
    
    $
    1,751.1
    
    
    $
    612.4
    
    
    $
    41.7
    
    
    $
    3,359.8Country of OriginCanada
    
    
    United States
    
    
    Trinidad
    
    
    Other
    
    
    Consolidated2004Sales to customers outside the companyCanada
    
    $
    48.3
    
    
    $
    87.5
    
    
    $
    
    
    
    $
    
    
    
    $
    135.8United States
    
    
    443.0
    
    
    
    1,383.7
    
    
    
    413.1
    
    
    
    2.8
    
    
    
    2,242.6PhosChem
    
    
    
    
    
    
    140.4
    
    
    
    
    
    
    
    
    
    
    
    140.4Canpotex
    
    
    421.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    421.9Other
    
    
    114.9
    
    
    
    57.3
    
    
    
    86.1
    
    
    
    45.4
    
    
    
    303.7$
    1,028.1
    
    
    $
    1,668.9
    
    
    $
    499.2
    
    
    $
    48.2
    
    
    $
    3,244.4Operating income
    
    $
    250.0
    
    
    $
    67.8
    
    
    $
    139.8
    
    
    $
    56.7
    
    
    $
    514.3Capital assets and goodwill
    
    $
    831.2
    
    
    $
    1,722.6
    
    
    $
    601.4
    
    
    $
    40.7
    
    
    $
    3,195.9
 19.
    
    COST OF GOODS SOLD
  PROVISION FOR PLANT SHUTDOWNS  PHOSPHATE SEGMENT




---



##### 



NOTES TO THE POTASHCORP CONSOLIDATED
FINANCIAL STATEMENTS / in millions of US dollars except share and per-share
amounts 73
 20.
    
    SELLING AND ADMINISTRATIVE
  21.
    
    PROVINCIAL MINING AND OTHER TAXES
  2006
    
    
    2005
    
    
    2004Potash Production Tax
    
    $
    28.6
    
    
    $
    94.8
    
    
    $
    63.7Saskatchewan corporate capital taxes and other
    
    
    37.9
    
    
    
    42.4
    
    
    
    28.9$
    66.5
    
    
    $
    137.2
    
    
    $
    92.6
 22.
    
    OTHER INCOME
 2006
    
    
    2005
    
    
    2004Share of earnings of equity investees
    
    $
    54.4
    
    
    $
    52.1
    
    
    $
    30.9Dividend income
    
    
    21.1
    
    
    
    9.2
    
    
    
    8.2Gain on sale of long-term investments (Note 4)
    
    
    
    
    
    
    
    
    
    
    34.4Other
    
    
    18.5
    
    
    
    0.5
    
    
    
    2.3$
    94.0
    
    
    $
    61.8
    
    
    $
    75.8
 23.
    
    INTEREST EXPENSE
 2006
    
    
    2005
    
    
    2004Interest expense onShort-term debt
    
    $
    34.5
    
    
    $
    7.0
    
    
    $
    3.4Long-term debt
    
    
    97.6
    
    
    
    94.1
    
    
    
    89.0Interest capitalized to property, plant and equipment
    
    
    (19.1
    )
    
    
    (5.7
    )
    
    
    (2.5
    )Interest income
    
    
    (27.4
    )
    
    
    (13.1
    )
    
    
    (5.9
    )$
    85.6
    
    
    $
    82.3
    
    
    $
    84.0
 24.
    
    INCOME TAXES
 
 2006
    
    
    2005
    
    
    2004Income before income taxesCanada
    
    $
    320.1
    
    
    $
    381.5
    
    
    $
    175.0United States
    
    
    219.3
    
    
    
    170.0
    
    
    
    69.1Trinidad
    
    
    148.5
    
    
    
    175.6
    
    
    
    118.5Other
    
    
    102.0
    
    
    
    83.2
    
    
    
    67.7$
    789.9
    
    
    $
    810.3
    
    
    $
    430.3Federal and provincial statutory tax rates
    
    
    39.25%
    
    
    
    42.52%
    
    
    
    43.36%Tax at statutory rates
    
    $
    310.0
    
    
    $
    344.5
    
    
    $
    186.6Adjusted for the effect of:Recoveries upon Canadian tax rate reductions
    
    
    (44.8
    )
    
    
    
    
    
    
    Refunds upon deduction of Saskatchewan resource surcharge
    
    
    (34.1
    )
    
    
    
    
    
    
    Net non-deductible provincial taxes and royalties and resource allowances
    
    
    (6.3
    )
    
    
    (1.2
    )
    
    
    8.1Stock-based compensation deduction
    
    
    (5.8
    )
    
    
    (13.2
    )
    
    
    (17.1
    )Gain on sale of long-term investments
    
    
    
    
    
    
    
    
    
    
    (14.9
    )Additional tax deductions
    
    
    (15.5
    )
    
    
    (14.8
    )
    
    
    (11.0
    )Difference between Canadian rate and rates applicable to subsidiaries in other countries
    
    
    (50.5
    )
    
    
    (48.9
    )
    
    
    (26.7
    )Other
    
    
    5.1
    
    
    
    1.0
    
    
    
    6.7Income tax expense
    
    $
    158.1
    
    
    $
    267.4
    
    
    $
    131.7




---



##### 



74 NOTES TO THE POTASHCORP CONSOLIDATED
FINANCIAL STATEMENTS / in
millions of US dollars except share and per-share amounts
 24.
    
    INCOME TAXES (CONTINUED)
  2006
    
    
    2005
    
    
    2004CanadaCurrent
    
    $
    51.8
    
    
    $
    170.5
    
    
    $
    69.4Future
    
    
    (4.3
    )
    
    
    12.6
    
    
    
    11.5United States  FederalCurrent
    
    
    2.3
    
    
    
    0.8
    
    
    
    14.7Future
    
    
    43.7
    
    
    
    30.8
    
    
    
    (19.4
    )United States  StateCurrent
    
    
    2.6
    
    
    
    2.2
    
    
    
    2.2Future
    
    
    5.7
    
    
    
    (12.8
    )
    
    
    12.5Trinidad and otherCurrent
    
    
    51.4
    
    
    
    53.8
    
    
    
    19.1Future
    
    
    4.9
    
    
    
    9.5
    
    
    
    21.7Income tax expense
    
    $
    158.1
    
    
    $
    267.4
    
    
    $
    131.7
  2006
    
    
    2005Future income tax assets:Loss and credit carryforwards
    
    $
    207.3
    
    
    $
    266.2Accrued pension and other post-retirement benefits
    
    
    71.0
    
    
    
    70.0Other
    
    
    69.7
    
    
    
    44.5Total future income tax assets
    
    
    348.0
    
    
    
    380.7Future income tax liabilities:Basis difference in fixed assets
    
    
    826.2
    
    
    
    833.6Basis difference in long-term debt
    
    
    52.3
    
    
    
    Basis difference in investments
    
    
    27.7
    
    
    
    27.7Other
    
    
    73.9
    
    
    
    62.7Total future income tax liabilities
    
    
    980.1
    
    
    
    924.0Net future income tax liability
    
    $
    632.1
    
    
    $
    543.3
   25.
    
    NET INCOME PER SHARE
 2006
    
    
    2005
    
    
    2004Basic net income per share1Net income available to common shareholders
    
    $
    631.8
    
    
    $
    542.9
    
    
    $
    298.6Weighted average number of common shares
    
    
    103,960,000
    
    
    
    108,568,000
    
    
    
    107,967,000Basic net income per share
    
    $
    6.08
    
    
    $
    5.00
    
    
    $
    2.77Diluted net income per share1Net income available to common shareholders
    
    $
    631.8
    
    
    $
    542.9
    
    
    $
    298.6Weighted average number of common shares
    
    
    103,960,000
    
    
    
    108,568,000
    
    
    
    107,967,000Dilutive effect of stock options
    
    
    2,270,000
    
    
    
    2,510,000
    
    
    
    2,772,000Weighted average number of diluted common shares
    
    
    106,230,000
    
    
    
    111,078,000
    
    
    
    110,739,000Diluted net income per share
    
    $
    5.95
    
    
    $
    4.89
    
    
    $
    2.70
 1
    
    Net income per share calculations are based on full dollar and share amounts.




---



##### 



NOTES TO THE POTASHCORP CONSOLIDATED
FINANCIAL STATEMENTS / in
millions of US dollars except share and per-share
amounts 75
 25.
    
    NET INCOME PER SHARE (CONTINUED)
   26.
    
    STOCK-BASED COMPENSATION
  STOCK OPTION PLANS
      Number of Shares Subject to Option
 Performance Option Plans
    
    Officers and Employees and Directors Plans2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2004Outstanding, beginning of year
    
    
    1,186,000
    
    
    
    
    
    
    
    3,895,756
    
    
    
    6,400,730
    
    
    
    10,876,022Granted
    
    
    894,900
    
    
    
    1,188,500
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    (1,193,808
    )
    
    
    (2,459,594
    )
    
    
    (4,397,324
    )Cancelled
    
    
    (14,300
    )
    
    
    (2,500
    )
    
    
    
    
    
    
    (45,380
    )
    
    
    (77,968
    )Outstanding, end of year
    
    
    2,066,600
    
    
    
    1,186,000
    
    
    
    2,701,948
    
    
    
    3,895,756
    
    
    
    6,400,730The company did not grant any stock options in 2004.Weighted Average Exercise PricePerformance Option Plans
    
    
    Officers and Employees and Directors Plans2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2004Outstanding, beginning of year
    
    
    $   90.08
    
    
    
    $        
    
    
    
    $   38.41
    
    
    
    $   38.14
    
    
    
    $   36.64Granted
    
    
    101.01
    
    
    
    88.25
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    39.93
    
    
    
    38.14
    
    
    
    36.67Cancelled
    
    
    90.90
    
    
    
    90.38
    
    
    
    
    
    
    
    41.03
    
    
    
    38.59Outstanding, end of year
    
    
    94.13
    
    
    
    90.08
    
    
    
    38.04
    
    
    
    38.41
    
    
    
    38.14




---



##### 



76 NOTES TO THE POTASHCORP CONSOLIDATED
FINANCIAL STATEMENTS / in
millions of US dollars except share and per-share amounts
 26.
    
    STOCK-BASED COMPENSATION (CONTINUED)
  Options Outstanding
    
    
    Options ExercisableRange of
    
    
    
    
    
    Weighted Average
    
    
    Weighted Average
    
    
    
    
    
    
    Weighted AverageExercise Prices
    
    Number
    
    
    Remaining Life
    
    
    Exercise Price
    
    
    Number
    
    
    Exercise PriceOfficers and Employees and Directors Plans$21.84 to $31.50
    
    
    564,400
    
    
    4 years
    
    
    
    $ 30.68
    
    
    
    564,400
    
    
    
    $ 30.68$33.00 to $42.87
    
    
    1,497,498
    
    
    6 years
    
    
    
    $ 37.92
    
    
    
    1,497,498
    
    
    
    $ 37.92$43.38 to $52.13
    
    
    640,050
    
    
    5 years
    
    
    
    $ 44.78
    
    
    
    640,050
    
    
    
    $ 44.782,701,948
    
    
    5 years
    
    
    
    $ 38.04
    
    
    
    2,701,948
    
    
    
    $ 38.04Performance Option Plans$88.23 to $101.01
    
    
    2,066,600
    
    
    8 years
    
    
    
    $ 94.13
    
    
    
    
    
    
    
    4,768,548
    
    
    6 years
    
    
    
    $ 62.34
    
    
    
    2,701,948
    
    
    
    $ 38.04
    Year of Grant2006
    
    
    2005
    
    
    2003
    
    
    2002Expected dividend
    
    
    $0.60
    
    
    
    $0.60
    
    
    
    $0.50
    
    
    
    $0.50Expected volatility
    
    
    30%
    
    
    
    28%
    
    
    
    27%
    
    
    
    32%Risk-free interest rate
    
    
    4.90%
    
    
    
    3.86%
    
    
    
    4.06%
    
    
    
    4.13%Expected life of options
    
    6.5 years
    
    
    6.5 years
    
    
    8 years
    
    
    8 years
   Number of
    
    
    Weighted AverageShares Subject
    
    
    Grant-Dateto Option
    
    
    Fair ValueNon-vested at January 1, 2006
    
    
    1,186,000
    
    
    $
    29.82Granted
    
    
    894,900
    
    
    
    38.53Vested
    
    
    
    
    
    
    Cancelled
    
    
    (14,300
    )
    
    
    30.25Non-vested at December 31, 2006
    
    
    2,066,600
    
    
    $
    33.58
   DEFERRED SHARE UNIT AND OTHER PLANS




---



##### 



NOTES TO THE POTASHCORP CONSOLIDATED
FINANCIAL STATEMENTS / in
millions of US dollars except share and per-share
amounts 77
 26.
    
    STOCK-BASED COMPENSATION (CONTINUED)
    27.
    
    FINANCIAL INSTRUMENTS AND RISK MANAGEMENT




---



##### 



78 NOTES
TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except
share and per-share amounts
 27.
    
    FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
 FAIR VALUE
   28.
    
    CONTINGENCIES
 CANPOTEX
  MINING RISK
  INVESTMENT IN APC
 LEGAL AND OTHER MATTERS




---



##### 



NOTES
TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except
share and per-share
amounts 79
 28.
    
    CONTINGENCIES (CONTINUED)
 29.
    
    GUARANTEES




---



##### 



80 NOTES
TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except
share and per-share amounts
 29.
    
    GUARANTEES (CONTINUED)
     30.
    
    RELATED PARTY TRANSACTIONS
  31.
    
    COMPARATIVE FIGURES
  32.
    
    RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
  (a) Long-term investments
 (b) Property, plant and equipment and goodwill
 (c) Depreciation and amortization
 (d) Exploration costs
 (e) Pre-operating costs
 (f) Asset retirement obligations
 (g) Pension and other post-retirement benefits
  (h) Foreign currency translation adjustment




---



##### 



NOTES
TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except
share and per-share
amounts 81
 32.
    
    RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
  (i) Derivative instruments and hedging activities
 (j) Comprehensive income
 (k) Stock-based compensation
  (l) Stripping costs
  (m) Deferred debt costs
 (n) Income taxes related to the above adjustments
 (o) Income tax consequences of stock-based employee compensation
 (p) Cash flow statements




---



##### 



82 NOTES
TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except
share and per-share amounts
 32.
    
    RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
  2006
    
    
    2005
    
    
    2004Net income as reported  Canadian GAAP
    
    $
    631.8
    
    
    $
    542.9
    
    
    $
    298.6Items increasing (decreasing) reported net incomeCash flow hedge ineffectiveness
    
    
    (4.5
    )
    
    
    2.3
    
    
    
    2.6Depreciation and amortization
    
    
    8.4
    
    
    
    8.4
    
    
    
    8.4Stock-based compensation
    
    
    1.3
    
    
    
    
    
    
    
    Stripping costs
    
    
    2.6
    
    
    
    
    
    
    
    Exploration costs
    
    
    
    
    
    
    (6.4
    )
    
    
    Accretion of asset retirement obligations
    
    
    
    
    
    
    
    
    
    
    3.3Share of earnings of equity investees
    
    
    0.5
    
    
    
    3.7
    
    
    
    Pension and other post-retirement benefits
    
    
    2.0
    
    
    
    2.4
    
    
    
    (2.2
    )Deferred income taxes relating to the above adjustments
    
    
    (3.0
    )
    
    
    (3.4
    )
    
    
    (4.3
    )Income taxes related to stock-based compensation
    
    
    (13.3
    )
    
    
    (17.2
    )
    
    
    (15.9
    )Net income  US GAAP
    
    $
    625.8
    
    
    $
    532.7
    
    
    $
    290.5Basic weighted average shares outstanding  US GAAP
    
    
    103,960,000
    
    
    
    108,568,000
    
    
    
    107,967,000Diluted weighted average shares outstanding  US GAAP
    
    
    106,223,000
    
    
    
    111,078,000
    
    
    
    110,739,000Basic net income per share  US GAAP
    
    $
    6.02
    
    
    $
    4.91
    
    
    $
    2.69Diluted net income per share  US GAAP
    
    $
    5.89
    
    
    $
    4.80
    
    
    $
    2.62Total assets as reported  Canadian GAAP
    
    $
    6,217.0
    
    
    $
    5,357.9Items increasing (decreasing) reported total assetsInventory and other current assets
    
    
    8.0
    
    
    
    (7.2
    )Available-for-sale securities (unrealized holding gain)
    
    
    889.9
    
    
    
    355.2Fair value of derivative instruments
    
    
    120.3
    
    
    
    277.1Property, plant and equipment
    
    
    (109.7
    )
    
    
    (118.1
    )Exploration costs
    
    
    (6.4
    )
    
    
    (6.4
    )Stripping costs
    
    
    (21.8
    )
    
    
    Deferred debt costs
    
    
    (23.9
    )
    
    
    Pension and other post-retirement benefits
    
    
    6.7
    
    
    
    14.1Intangible asset relating to additional minimum pension liability
    
    
    
    
    
    
    11.1Investment in equity investees
    
    
    5.5
    
    
    
    4.8Goodwill
    
    
    (46.7
    )
    
    
    (46.7
    )Total assets  US GAAP
    
    $
    7,038.9
    
    
    $
    5,841.8Total shareholders equity as reported  Canadian GAAP
    
    $
    2,780.3
    
    
    $
    2,132.5
    
    
    $
    2,385.6Items increasing (decreasing) reported shareholders equityAccumulated other comprehensive income, net of related income taxes
    
    
    733.5
    
    
    
    343.2
    
    
    
    96.8Foreign currency translation adjustment
    
    
    20.9
    
    
    
    20.9
    
    
    
    20.9Provision for asset impairment
    
    
    (218.0
    )
    
    
    (218.0
    )
    
    
    (218.0
    )Depreciation and amortization
    
    
    61.6
    
    
    
    53.2
    
    
    
    44.8Exploration costs
    
    
    (6.4
    )
    
    
    (6.4
    )
    
    
    Stripping costs
    
    
    2.6
    
    
    
    
    
    
    
    Cash flow hedge ineffectiveness
    
    
    0.4
    
    
    
    4.9
    
    
    
    2.6Pension and other post-retirement benefits
    
    
    16.1
    
    
    
    14.1
    
    
    
    11.7Share of other comprehensive income of equity investees
    
    
    4.2
    
    
    
    3.7
    
    
    
    Deferred income taxes relating to the above adjustments
    
    
    24.0
    
    
    
    27.0
    
    
    
    30.4Cumulative effect adjustment to retained earnings in respect of stripping costs
    
    
    (16.3
    )
    
    
    
    
    
    
    Shareholders equity  US GAAP
    
    $
    3,402.9
    
    
    $
    2,375.1
    
    
    $
    2,374.8




---



##### 



NOTES
TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except
share and per-share
amounts 83
 32.
    
    RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
 SUPPLEMENTAL US GAAP DISCLOSURE
 Recent Accounting Pronouncements
 Inventory Costs
  Stripping Costs Incurred in the Production Phase of a Mining Operation
  Determining the Variability to be Considered in Applying the Variable Interest Entity Standards
  Uncertainty in Income Taxes
 Planned Major Maintenance Activities
  Quantifying Misstatements in the Financial Statements
  Framework for Fair Value Measurement
  Defined Benefit Pension and Other Post-Retirement Benefit Plans




---



##### 



84 NOTES
TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except
share and per-share amounts
  32. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
  At December 31, 2006Prior to
    
    
    Effect ofadopting
    
    
    adoptingSFAS No. 158
    
    
    SFAS No. 158
    
    
    As reportedPrepaid pension costs
    
    $
    42.9
    
    
    $
    (9.8
    )
    
    $
    33.1Intangible pension asset
    
    
    9.0
    
    
    
    (9.0
    )
    
    
    Current liabilities
    
    
    (8.9
    )
    
    
    
    
    
    
    (8.9
    )Long-term liabilities
    
    
    (300.1
    )
    
    
    (78.0
    )
    
    
    (378.1
    )Deferred income tax liability
    
    
    109.3
    
    
    
    26.0
    
    
    
    135.3Accumulated other comprehensive income
    
    
    47.1
    
    
    
    70.8
    
    
    
    117.9
 Available-for-Sale Securities
  Deferred Income Taxes
  Stock-Based Compensation
 Derivative Instruments and Hedging Activities
   Pension and Other Post-Retirement Benefits
  Related Party Transactions
  SUPPLEMENTAL SCHEDULES




---



##### 



NOTES
TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts 85
 32.
    
    RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(CONTINUED)
 SUPPLEMENTAL SCHEDULE OF CONSOLIDATED FINANCIAL POSITION
  2006
    
    
    2005AssetsCurrent assetsCash and cash equivalents
    
    $
    325.7
    
    
    $
    93.9Accounts receivable
    
    
    442.3
    
    
    
    453.3Inventories
    
    
    494.9
    
    
    
    515.3Prepaid expenses and other current assets
    
    
    40.9
    
    
    
    41.1Current portion of derivative instruments
    
    
    50.9
    
    
    
    103.91,354.7
    
    
    
    1,207.5Derivative instruments
    
    
    69.4
    
    
    
    173.2Property, plant and equipment
    
    
    3,409.8
    
    
    
    3,138.4Other assets
    
    
    2,125.4
    
    
    
    1,226.8Intangible assets
    
    
    29.3
    
    
    
    45.6Goodwill
    
    
    50.3
    
    
    
    50.3$
    7,038.9
    
    
    $
    5,841.8LiabilitiesCurrent liabilitiesShort-term debt
    
    $
    157.9
    
    
    $
    252.2Accounts payable and accrued charges
    
    
    573.5
    
    
    
    842.7Current portion of long-term debt
    
    
    400.4
    
    
    
    1.21,131.8
    
    
    
    1,096.1Long-term debt
    
    
    1,339.8
    
    
    
    1,257.6Deferred income tax liability
    
    
    668.5
    
    
    
    690.2Accrued pension and other post-retirement benefits
    
    
    378.1
    
    
    
    308.3Accrued environmental costs and asset retirement obligations
    
    
    110.3
    
    
    
    97.3Other non-current liabilities and deferred credits
    
    
    7.5
    
    
    
    17.23,636.0
    
    
    
    3,466.7Shareholders EquityShare capital
    
    
    1,431.6
    
    
    
    1,379.3Additional paid-in capital
    
    
    113.1
    
    
    
    75.1Retained earnings
    
    
    1,124.7
    
    
    
    577.5Accumulated other comprehensive income
    
    
    733.5
    
    
    
    343.23,402.9
    
    
    
    2,375.1$
    7,038.9
    
    
    $
    5,841.8
 SUPPLEMENTAL SCHEDULE OF CONSOLIDATED ACCUMULATED OTHER COMPREHENSIVE INCOME
  2006
    
    
    2005
    
    
    2004Accumulated other comprehensive income, beginning of
year
    
    $
    343.2
    
    
    $
    96.8
    
    
    $
    31.2Other comprehensive income, net of related income taxes
    
    
    461.1
    
    
    
    246.4
    
    
    
    65.6Cumulative effect adjustment related to pension and
other post-retirement benefits
    
    
    (70.8
    )
    
    
    
    
    
    
    Accumulated other comprehensive income, end of year
    
    $
    733.5
    
    
    $
    343.2
    
    
    $
    96.8




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##### 



86 NOTES
TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts
 32.
    
    RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(CONTINUED)
 SUPPLEMENTAL SCHEDULE OF CONSOLIDATED ACCUMULATED OTHER COMPREHENSIVE INCOME (continued)
  2006
    
    
    2005
    
    
    2004Unrealized gains and losses on available-for-sale
securities
    
    $
    792.0
    
    
    $
    236.3
    
    
    $
    106.7Gains and losses on derivatives designated as cash
flow hedges
    
    
    79.4
    
    
    
    182.4
    
    
    
    47.4Additional minimum pension liability
    
    
    
    
    
    
    (55.4
    )
    
    
    (36.4
    )Pension and other post-retirement benefits*
    
    
    (117.9
    )
    
    
    
    
    
    
    Share of other comprehensive income of equity investees
    
    
    0.9
    
    
    
    0.8
    
    
    
    Foreign currency translation adjustment
    
    
    (20.9
    )
    
    
    (20.9
    )
    
    
    (20.9
    )Accumulated other comprehensive income, end of year
    
    $
    733.5
    
    
    $
    343.2
    
    
    $
    96.8
  SUPPLEMENTAL SCHEDULE OF CONSOLIDATED OPERATIONS AND RETAINED EARNINGS
  2006
    
    
    2005
    
    
    2004Sales
    
    $
    3,766.7
    
    
    $
    3,847.2
    
    
    $
    3,244.4Less:
    
    Freight
    
    
    255.8
    
    
    
    249.7
    
    
    
    238.7Transportation and distribution
    
    
    134.1
    
    
    
    121.9
    
    
    
    104.3Cost of goods sold
    
    
    2,365.4
    
    
    
    2,337.5
    
    
    
    2,207.9Gross Margin
    
    
    1,011.4
    
    
    
    1,138.1
    
    
    
    693.5Selling and administrative
    
    
    158.0
    
    
    
    144.5
    
    
    
    130.6Provincial mining and other taxes
    
    
    66.5
    
    
    
    137.2
    
    
    
    92.6Foreign exchange (gain) loss
    
    
    (4.4
    )
    
    
    12.5
    
    
    
    19.7Share of earnings of equity investees
    
    
    (54.9
    )
    
    
    (55.8
    )
    
    
    (30.9
    )Other income
    
    
    (39.6
    )
    
    
    (3.3
    )
    
    
    (44.9
    )125.6
    
    
    
    235.1
    
    
    
    167.1Operating Income
    
    
    885.8
    
    
    
    903.0
    
    
    
    526.4Interest Expense
    
    
    85.6
    
    
    
    82.3
    
    
    
    84.0Income Before Income Taxes
    
    
    800.2
    
    
    
    820.7
    
    
    
    442.4Income Taxes
    
    
    174.4
    
    
    
    288.0
    
    
    
    151.9Net Income
    
    
    625.8
    
    
    
    532.7
    
    
    
    290.5Retained Earnings, Beginning of Year
    
    
    577.5
    
    
    
    572.3
    
    
    
    341.7Cumulative Effect Adjustment in
Respect of Stripping Costs
    
    
    (16.3
    )
    
    
    
    
    
    
    Repurchase of Common Shares
    
    
    
    
    
    
    (462.5
    )
    
    
    Dividends
    
    
    (62.3
    )
    
    
    (65.0
    )
    
    
    (59.9
    )Retained Earnings, End of Year
    
    $
    1,124.7
    
    
    $
    577.5
    
    
    $
    572.3Net Income per Share  Basic
    
    $
    6.02
    
    
    $
    4.91
    
    
    $
    2.69Net Income per Share  Diluted
    
    $
    5.89
    
    
    $
    4.80
    
    
    $
    2.62Dividends per Share
    
    $
    0.60
    
    
    $
    0.60
    
    
    $
    0.55
 SUPPLEMENTAL SCHEDULE OF CONSOLIDATED COMPREHENSIVE INCOME
  2006
    
    
    2005
    
    
    2004Net income
    
    $
    625.8
    
    
    $
    532.7
    
    
    $
    290.5Other comprehensive incomeChange in unrealized holding gains and losses on
available-for-sale securities
    
    
    534.7
    
    
    
    193.5
    
    
    
    101.2Change in gains and losses on derivatives designated as
cash flow hedges
    
    
    (68.2
    )
    
    
    255.0
    
    
    
    49.3Reclassification to income of gains and losses on cash
flow hedges
    
    
    (79.7
    )
    
    
    (53.5
    )
    
    
    (43.0
    )Adjustment to additional minimum pension liability
    
    
    11.7
    
    
    
    (28.4
    )
    
    
    (9.6
    )Share of other comprehensive income of equity investees
    
    
    0.2
    
    
    
    1.1
    
    
    
    Deferred income taxes related to other comprehensive income
    
    
    62.4
    
    
    
    (121.3
    )
    
    
    (32.3
    )Other comprehensive income, net of related income taxes
    
    
    461.1
    
    
    
    246.4
    
    
    
    65.6Comprehensive income
    
    $
    1,086.9
    
    
    $
    779.1
    
    
    $
    356.1




---



##### 



NOTES
TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts 87
 32.
    
    RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(CONTINUED)
 SUPPLEMENTAL SCHEDULE OF CONSOLIDATED CASH FLOW
  2006
    
    
    2005
    
    
    2004Operating ActivitiesNet income
    
    $
    625.8
    
    
    $
    532.7
    
    
    $
    290.5Adjustments to reconcile net income to cash provided by
operating activities
Depreciation and amortization
    
    
    234.0
    
    
    
    234.0
    
    
    
    231.6Stock-based compensation
    
    
    28.5
    
    
    
    27.5
    
    
    
    11.1(Gain) loss on disposal of property, plant and
equipment and long-term investments
    
    
    (8.6
    )
    
    
    11.8
    
    
    
    (35.1
    )Provisions for phosphate plant shutdowns and
PCS Yumbes
    
    
    6.3
    
    
    
    
    
    
    
    3.6Foreign exchange on deferred income tax
    
    
    0.5
    
    
    
    8.9
    
    
    
    17.2Provision for deferred income tax
    
    
    52.7
    
    
    
    43.5
    
    
    
    30.6Undistributed earnings of equity investees
    
    
    (25.0
    )
    
    
    (37.2
    )
    
    
    (22.2
    )Other long-term liabilities
    
    
    13.4
    
    
    
    20.2
    
    
    
    (2.3
    )Changes in non-cash operating working capitalAccounts receivable
    
    
    11.0
    
    
    
    (107.6
    )
    
    
    (51.9
    )Inventories
    
    
    15.8
    
    
    
    (122.2
    )
    
    
    (10.5
    )Prepaid expenses and other current assets
    
    
    (1.8
    )
    
    
    (8.2
    )
    
    
    (8.9
    )Accounts payable and accrued charges
    
    
    (269.1
    )
    
    
    238.1
    
    
    
    188.7Cash provided by operating activities
    
    
    683.5
    
    
    
    841.5
    
    
    
    642.4Investing ActivitiesAdditions to property, plant and equipment
    
    
    (508.6
    )
    
    
    (376.3
    )
    
    
    (220.5
    )Purchase of long-term investments
    
    
    (352.5
    )
    
    
    (190.9
    )
    
    
    (105.5
    )Proceeds from disposal of property, plant and
equipment and long-term investments
    
    
    22.0
    
    
    
    12.4
    
    
    
    103.3Other assets and intangible assets
    
    
    (0.6
    )
    
    
    5.9
    
    
    
    (2.8
    )Cash used in investing activities
    
    
    (839.7
    )
    
    
    (548.9
    )
    
    
    (225.5
    )Financing ActivitiesProceeds from (repayment of) long-term debt obligations
    
    
    482.6
    
    
    
    (10.1
    )
    
    
    (1.0
    )(Repayment of) proceeds from short-term debt obligations
    
    
    (94.3
    )
    
    
    158.7
    
    
    
    (82.7
    )Dividends
    
    
    (60.9
    )
    
    
    (65.4
    )
    
    
    (56.1
    )Repurchase of common shares
    
    
    
    
    
    
    (851.9
    )
    
    
    Issuance of common shares
    
    
    47.3
    
    
    
    93.9
    
    
    
    161.2Income taxes related to stock-based compensation
    
    
    13.3
    
    
    
    17.2
    
    
    
    15.9Cash provided (used in) by financing activities
    
    
    388.0
    
    
    
    (657.6
    )
    
    
    37.3Increase (Decrease) in Cash and Cash Equivalents
    
    
    231.8
    
    
    
    (365.0
    )
    
    
    454.2Cash and Cash Equivalents, Beginning of Year
    
    
    93.9
    
    
    
    458.9
    
    
    
    4.7Cash and Cash Equivalents, End of Year
    
    $
    325.7
    
    
    $
    93.9
    
    
    $
    458.9Supplemental cash flow disclosureIncome taxes paid
    
    $
    296.8
    
    
    $
    141.6
    
    
    $
    33.5




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##### 



88 POTASHCORP 2006 FINANCIAL REVIEW / SHAREHOLDER INFORMATION
 
 SHAREHOLDER INFORMATION
 
  INVESTOR INQUIRIES
 
 DIVIDENDS
    OWNERSHIP
  CORPORATE OFFICES
 Canada:
    
    US:Suite 500
    
    Suite 400122
 1st Avenue South
    
    1101 Skokie BoulevardSaskatoon SK S7K 7G3
    
    Northbrook IL 60062Phone: (306) 933-8500
    
    Phone: (847) 849-4200
 COMMON SHARE PRICES AND VOLUMES
  Toronto Stock Exchange1
    
    
    New York Stock ExchangeHigh
    
    
    Low
    
    
    Volume
    
    
    High
    
    
    Low
    
    
    Volume2006First Quarter
    
    
    113.88
    
    
    
    91.50
    
    
    
    21,008,219
    
    
    
    99.24
    
    
    
    78.15
    
    
    
    55,217,500Second Quarter
    
    
    117.00
    
    
    
    86.79
    
    
    
    18,686,817
    
    
    
    106.40
    
    
    
    78.84
    
    
    
    54,130,300Third Quarter
    
    
    118.46
    
    
    
    92.01
    
    
    
    14,141,380
    
    
    
    106.48
    
    
    
    82.03
    
    
    
    41,196,600Fourth Quarter
    
    
    170.89
    
    
    
    113.25
    
    
    
    19,487,859
    
    
    
    147.19
    
    
    
    101.50
    
    
    
    61,695,700Year 2006
    
    
    170.89
    
    
    
    86.79
    
    
    
    73,324,275
    
    
    
    147.19
    
    
    
    78.15
    
    
    
    212,240,1002005First Quarter
    
    
    113.92
    
    
    
    89.11
    
    
    
    18,297,446
    
    
    
    92.00
    
    
    
    72.91
    
    
    
    32,012,000Second Quarter
    
    
    132.11
    
    
    
    98.39
    
    
    
    13,432,009
    
    
    
    106.67
    
    
    
    79.27
    
    
    
    29,833,400Third Quarter
    
    
    137.99
    
    
    
    108.23
    
    
    
    14,451,392
    
    
    
    115.15
    
    
    
    92.85
    
    
    
    24,526,600Fourth Quarter
    
    
    108.89
    
    
    
    84.76
    
    
    
    22,180,812
    
    
    
    93.32
    
    
    
    72.77
    
    
    
    46,103,900Year 2005
    
    
    137.99
    
    
    
    84.76
    
    
    
    68,361,659
    
    
    
    115.15
    
    
    
    72.77
    
    
    
    132,475,900
  1 Trading prices are in Cdn$
    
    Source: Thomson Financial
 NYSE CORPORATE GOVERNANCE
   Yearly POT Stock Price  NYSE Composite




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##### 



POTASHCORP 2006 FINANCIAL REVIEW / APPENDIX 89
 
 MARKET AND INDUSTRY DATA STATEMENT
 
   
 FOOTNOTES, SOURCES, ABBREVIATIONS, TERMS AND MEASURES
 
  FOOTNOTES1
    
    Geographic Availability
of Raw Materials
    
    Source: Fertecon, EIA2
    
    Cost of New Capacity
    
    Source: Fertecon, PotashCorp3
    
    Greenfield
    
    Definition: New operation built on
undeveloped site4
    
    Greenfield Development Time
    
    Source: Fertecon, PotashCorp5
    
    Producing Countries
    
    Source: Fertecon6
    
    State- or Subsidy-
Controlled Production
    
    Source: Fertecon, British Sulphur, PotashCorp7
    
    Industry Operating Rate
    
    Source: Fertecon, PotashCorp8
    
    PotashCorp Capacity
    
    Source: Fertecon, PotashCorp9
    
    PotashCorp World
Position by Capacity
    
    Source: Fertecon; Blue, Johnson; Agrium;
Mosaic; PotashCorp10
    
    Total World Demand
    
    Source: Fertecon, IFA, PotashCorp11
    
    PotashCorp Share of
World Production
    
    Source: Fertecon; Blue, Johnson; Agrium;
Mosaic; PotashCorp
 ABBREVIATED COMPANY NAMES AND SOURCES*Agrifos
    
    Agrifos Fertilizer Inc., USAAgrium
    
    Agrium Inc. (TSX and NYSE: AGU), CanadaAPC
    
    Arab Potash Company Ltd. (Amman: ARPT), JordanBASF
    
    BASF Group (Xetra: BAS, NYSE: BF), USABelaruskali
    
    PA Belaruskali, BelarusBlue, Johnson
    
    Blue, Johnson & Associates, USABPC
    
    Belarusian Potash Company, BelarusBritish Sulphur
    
    British Sulphur Consultants, UKCanpotex
    
    Canpotex Limited, CanadaCF Industries
    
    CF Industries, Inc., USACNC
    
    Caribbean Nitrogen Company, TrinidadCP Rail
    
    Canadian Pacific Railway, CanadaCVRD
    
    Companhia Vale do Rio Doce, BrazilDoane
    
    Doane Agricultural Services, USADJUSBM
    
    Dow Jones U.S. Basic Materials Index, USADSM
    
    DSM Chemicals North America Inc. (XAMS: DSMA,NYSE: DSMKY), USAEIA
    
    Energy Information Administration, USAEmaphos
    
    Euro-Maroc-Phosphore, MoroccoFertecon
    
    Fertecon Limited and Fertecon Research Centre Limited, UKIsrael Chemicals (ICL)
    
    Israel Chemicals Ltd. (Tel Aviv: CHIM), IsraelIFA
    
    International Fertilizer Industry Association, FranceIMF
    
    International Monetary Fund, USAINEOS
    
    INEOS USA LLC, USAINNOPHOS
    
    Innophos, Inc., USAIntrepid
    
    Intrepid Potash, USAIPNI
    
    International Plant Nutrition Institute, USAKali & Salz (K+S)
    
    Kali und Salz GmbH (Xetra: SDF), GermanyKoch
    
    Koch Industries, Inc., USAMississippi Phosphate
    
    Mississippi Phosphate Corporation, USAMosaic
    
    The Mosaic Company (NYSE: MOS), USANCPC
    
    North Carolina Phosphate Company, USANOLA
    
    New Orleans, Louisiana, USANYMEX
    
    New York Mercantile Exchange, USANYSE
    
    New York Stock Exchange, USAOCP
    
    Office Cherifien des Phosphates, MoroccoPemex
    
    Petroleos Mexicanos, MexicoPhosChem
    
    Phosphate Chemical Export Association, Inc., USAPIRA
    
    PIRA Energy Group, USAPrayon
    
    Prayon Inc., USAQSLP
    
    Qinghai Salt Lake Potash Co. Ltd., China
 ABBREVIATED COMPANY NAMES AND SOURCES* (continued)Rotem
    
    Rotem Amfert Negev Fertilizers Limited, IsraelSilvinit
    
    JSC Silvinit, RussiaSinofert
    
    Sinofert Holdings Limited (HKSE, 0297.HK), ChinaSQM
    
    Sociedad Quimica y Minera de Chile S.A. (Santiago Bolsa
de Comercio Exchange, NYSE: SQM), ChileTerra
    
    Terra Industries, Inc. (NYSE: TRA), USATFI
    
    The Fertilizer Institute, USATringen
    
    Trinidad Nitrogen Co., Limited, TrinidadTSX
    
    Toronto Stock Exchange, CanadaUralkali
    
    JSC Uralkali, RussiaUSDA
    
    US Department of Agriculture, USAYara
    
    Yara International (Formerly Hydro Agri and Hydro Gas
and Chemicals) (Oslo: YAR), Norway
 GLOSSARY OF TERMS2006E
    
    2006 Estimated2007F
    
    2007 ForecastCanpotex
    
    An export company owned by all Saskatchewan producers
of potash (PotashCorp, Mosaic and Agrium).Consumption vs Demand
    
    Product applied vs product purchasedFSU
    
    The former Soviet UnionLarge Florida
    
    Large Florida phosphate producers, excluding PotashCorpNorth America
    
    The North American market includes Canada and the
United States.Offshore
    
    Offshore markets include all markets except Canada and
the United States.PhosChem
    
    An association formed under the Webb-Pomerene Act for
US exports of phosphate fertilizer products. Members are
PotashCorp, Mosaic and CF Industries. PCS Sales is
responsible for export sales of liquid fertilizers for all
PhosChem members while Mosaic is responsible for sales
of solid fertilizers for members.PotashCorp
    
    Potash Corporation of Saskatchewan Inc. (PCS) and its
direct or indirect subsidiaries, individually or in any
combination, as applicableState- or Subsidy-Controlled Production
    
    State-controlled: Operational control in the hands of the stateSubsidy-controlled: The state provides subsidies which
control the economic viability of the operation
 SCIENTIFIC TERMSNitrogen
    
    NH3
    
    ammonia (anhydrous), 82.2% NHNO3
    
    nitric acid, 22% N (liquid)UAN
    
    nitrogen solutions, 28-32% N (liquid)Phosphate
    
    P2O5
    
    phosphoric acid (liquid)MGA
    
    merchant grade acid, 54% P2O5 (liquid)DAP
    
    diammonium phosphate, 46% P2O5 (solid)MAP
    
    monoammonium phosphate, 52% P2O5 (solid)SPA
    
    superphosphoric acid, 70% P2O5 (liquid)MCP
    
    monocalcium phosphate, 48.1% P2O5 (solid)DCP
    
    dicalcium phosphate, 42.4% P2O5 (solid)DFP
    
    defluorinated phosphate, 41.2% P2O5 (solid)Potash
    
    KCl
    
    potassium chloride, 60-63.2% (solid)
 FERTILIZER MEASURESP2O5 tonne
    
    Measures the phosphorus content of fertilizers having
different chemical analysesN tonne
    
    Measures the nitrogen content of fertilizers having different
chemical analysesProduct tonne
    
    Standard measure of the weights of all types of potash,
phosphate and nitrogen products




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#####